As lawmakers craft budget, officials brace for next year

Matt Bittle
Posted 6/6/15

DOVER — Around Legislative Hall there’s a sense among many lawmakers: As bad as this budget year is, next year will be even worse. The budget must be completed by June 30, and with just 10 …

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As lawmakers craft budget, officials brace for next year


DOVER — Around Legislative Hall there’s a sense among many lawmakers: As bad as this budget year is, next year will be even worse.

The budget must be completed by June 30, and with just 10 legislative days remaining, the pressure is on. In the past, the process has been completed earlier at times, but with the state facing some financial difficulties, legislators are in a holding pattern until an updated revenue report is put out in a week.

Despite the limited time remaining, some are not concerned.

A ticking clock has a way of creating urgency, Minority Leader Sen. Gary Simpson, R-Milford, said.

Gary Simpson Gary Simpson

President Pro Tempore Patricia Blevins, D-Elsmere, said the budget historically has not been finished until the end of the month, but in recent years it’s been done sooner to allow public dissemination. That will not be possible this year, she said.

Despite the challenges posed by declining revenues and a deficit, the budget must get done — lawmakers are required to craft a balanced budget. Technically, that is their only responsibility.

“It’s amazing how we’re only constitutionally challenged to do one thing, and it’s the hardest thing,” Speaker of the House Pete Schwartzkopf, D-Rehoboth Beach, said.

Peter Schwaarzkopf Peter Schwaarzkopf

The state is facing a $61.9 million hole, a larger deficit than it has seen at this point in recent years, according to Ann Visalli. The director of the Office of Management and Budget, she is closely involved in crafting the governor’s recommended budget. Released in January, it called for a $3.9 billion budget, but falling revenue projections have put pressure on lawmakers to either create new revenue or cut expenditures.

In the short term, raising revenue is best accomplished by increasing taxes. While cutting expenses could free up some money, services provided by the state could take a hit.

Both moves are politically unpopular, as evidenced by the Joint Finance Committee’s treatment of a proposed senior tax subsidy cut.

About 60,000 Delawareans older than 65 receive a credit of a few hundred dollars (the lesser of either $500 or half their local school property taxes), which is estimated to cost the state $23.6 million this fiscal year. As the state’s population of retirees increases, that figure is projected to grow to $46.4 million in 10 years.

Earlier this year, Gov. Jack Markell suggested halving the credit, a proposal met with fierce opposition from many members of the public — and subsequently, from the General Assembly.

Based on JFC’s reception to suggestions posed by the Department of Finance in May, it seems likely no changes will be made for the upcoming fiscal year.

While Democratic lawmakers and budget officials have argued there is little waste or unneeded spending, Republican legislators remain adamant the state should cut spending.

Sen. Simpson acknowledged the deficit for fiscal year 2017 is intimidating, but he said it’s too soon to start looking at raising taxes.

Some Republicans, who have echoed an oft-repeated line that the state has a spending problem not a revenue problem, may favor tight budget years.

Fewer available funds, Sen. Simpson noted, means the government can expand its services in only limited ways — something typically favored by Delaware Republicans.

“It seems like the more money you give government, the more money you spend,” he said with a chuckle.

Although he’s in favor of keeping an eye on the future, he opposes tax and fee increases that could help reduce the deficit.

Ace in the hole

While the nearly $62 million shortfall may be intimidating, the state does have an ace in the hole. There’s approximately $61 million in available money from several settlements received by the Attorney General’s Office. Attorney General Matt Denn has proposed using some of those funds for schools, substance-abuse treatment and police patrols, but JFC has the ultimate say over how it’s allocated.

If lawmakers cannot fill the gap in other ways, they may have to take that sum for use in the General Fund.

Legislators also can opt to shift some money set to be moved from the General Fund to the bond bill. The administration recommended allocating $15 million for infrastructure, although JFC determines how much to move.

Despite the emerging possibility the settlement is used for the budget, several top officials have spoken out against such a practice.

“It’s one-time, so it really just pushes the problem to next year, and so we are not comfortable making that decision lightly,” Ms. Visalli said.

JFC Co-Chair Sen. Harris McDowell, D-Wilmington, said after a committee meeting two weeks ago the money has not yet been set for a specific goal, even though it’s committed “in some people’s minds.”

He objected to using the settlement money for the General Fund, calling it “irresponsible” and noting it would in essence just be kicking the can down the road.

However, he did acknowledge that is a possibility, and JFC will have to make tough decisions involving the $61 million.

A spokeswoman for Mr. Denn said the attorney general “remains hopeful” the money will be allocated as he suggested and offered no further comment.

JFC is set to reconvene later in the month, after the Delaware Economic and Financial Advisory Council provides an updated revenue picture on June 15.

That decision irks the leading member of the House of Representatives.

“I think we have some people in the House and the Senate that are waiting to see whether our June DEFAC miraculously throws money out of the sky,” Rep. Schwartzkopf said.

He prefers finishing the budget before the annual June DEFAC and then using any extra money to put toward infrastructure projects funded by the bond bill.

“There are people in here that want to wait until the last second, and I’m not one of them,” he said.

Despite the distaste legislative leaders and Gov. Markell’s administration have for using the one-time money in this budget, JFC members may end up doing so. It would save them from having to push for higher taxes or fewer government services, at least for now.

The deficit almost perfectly matches the settlement total after JFC cut the initial shortfall by about $21 million.

Dark cloud looms

Regardless of what budget writers do with the settlement or the cash to the bond bill, a dark cloud looms. The state is projected to be $204.4 million in the hole for the fiscal year beginning July 1, 2016.

“I think there’s probably going to be no one single thing that solves that problem,” Ms. Visalli said. “It’s going to be a combination: continuing to look at the budget, looking at the expenditures, looking at some of the revenue sharing and then looking at our revenue streams as well. So those discussions will be ensuing, I assume, during the course of this month.”

Lawmakers have discussed ideas to prepare for 2017 either by making cuts, raising taxes or changing subsidies, but proposals are strictly informal at this point.

“You name it, it’s been talked about,” Rep. Schwartzkopf said.

He pointed to a May report released by a state committee created to analyze revenue streams. That panel recommended lowering income tax rates, eliminating itemized deductions and cutting the estate tax.

Some lawmakers also have discussed creating a new top-tier tax bracket or increasing the age at which Delawareans become eligible for certain subsidies.

Legislators had been bracing for a tough budget year for fiscal year 2016, and decisions like rejecting the senior credit cut have made it worse, Rep. Schwartzkopf said. He could not remember another year when the projections were so bleak more than a year before the fiscal year actually begins. Even fiscal year 2009, which saw the state overcome an $850 million gap, did not project to be that way, he said.

Although he’s not a member of JFC, Rep. Schwartzkopf pledged to oppose the transfer unless new revenue sources are created or revenue streams enhanced.

“If need be, we can use that $61 ... million and we can put out a balanced budget for this year,” he said. “Screws us for next year, because that’s one-time money, and that $61 million that we’re going to put in there will come back and add to the 204 that we already have. So we have to have recurring money.”

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