April 21, 2003

After hearing a generally upbeat, although somewhat qualified, forecast for the national and state economies, the Delaware Economic & Financial Advisory Council voted to authorize the legislature to add another $36.7 million to the fiscal 2004 budget.

Although the amount of General Fund money available for the year beginning July 1 has grown 5.6% since the beginning of the calendar year and 2.8% since Governor Ruth Ann Minner submitted a proposed budget based on a late-January forecast to the General Assembly, budget director Jennifer Davis said after the council's meeting that "the governor's proposal still stands at this point."

Minner asked the General Assembly to approve a 17% increase in fees companies and partnership pay to incorporate in Delaware, double the tax on cigarettes and 'uncouple' calculation of state inheritance tax from the federal tax, which is being phased out.

Davis said those 'structural' changes in the state tax system are still necessary to assure future stability although the budget crisis "is less draconian now than it was in [last] September."

Steven Cochrane, senior economist with West Chester, Pa.-based, told the meeting on Apr. 21 that Delaware is one of 19 states his firm considers to be still in recession, but it is widely agreed that state government finances here are, on balance, in better shape than most of the other states.

As Delaforum previously reported, the advisory council voted to revise upward from March levels both its revenue and spending forecasts for the current fiscal year and to increase its revenue projection for fiscal 2004. It cannot forecast next year's spending until the Assembly approves the budget, probably in late June.

The council sets the official appropriation limit at 98% of projected revenue plus the expected balance at the end of the fiscal year. That amount now stands at $2,255 million, up from $2,345.1 million in March and $2,318.6 million at the time of the governor's budget proposal.

The cash balance is expected to total $94.7 million. That would be down from $481.8 million a year earlier as a result of having spend more than was taken in during the present fiscal year.

With the economic outlook apparently brightening, the advisory council's revenue forecast  is expected to be increased again at the council's May meeting. By how much, of course, remains to be seen. That session is scheduled for the day before the Assembly's Joint Finance Committee is to begin to prepare the final version of the budget bill.

Davis and Secretary of Finance David Singleton said the Minner administration is prepared to work closely with the legislature to come up with a mutually agreeable product. "We're going to take a hard look at revenue categories [and] the governor will decide what adjustments she wants to make," Davis said. Budget-writing in Delaware for the past quarter century or so has traditionally been a bipartisan exercise.

Cochrane said that, with the presumed completion of the war in Iraq, the nation is poised for the long-awaited economic recovery. "If we don't have another shock out there, I think we're on our way," he said. He noted, however, that previous forecasts of an imminent turnaround had proven to be premature, largely as a result of international uncertainty.

Although Delaware appears to be lagging the nation in regard to a recovery, he predicted that, when it starts here, it will accelerate rapidly. About 85% of the state's growth rate is directly linked to the national economy," he said.

Specifically, his firm sees the recovery beginning in earnest at mid-year. Singleton said the advisory council's revenue estimates for fiscal 2004 are in line with that scenario. "Our numbers already accept an assumption that the economy will improve," he said.

He noted that income this year is now expected to total $2,371.5 million. That is below $2,425.7 taken in in fiscal 2002, but higher than the $2,364.8 million that the council forecast last June.

As previously reported, one revenue stream that has exceeded expectations this year is the state's escheat income from abandoned property. Following a U.S. Supreme Court ruling, in a case that pitted Delaware against New York, that money held by corporations for which they are unable to find the owner revert to the state of incorporation, Delaware has gone after large corporations with a combination of audits and voluntary compliance. That program is now expected to bring in $210 million, up from $156 million last fiscal year.

Singleton said the largest-ever payment from a single source, $47 million, came in in January, 2003. Last autumn, Governor Minner rescinded a request that public schools 'return' some state money to help meet that anticipated budget shortfall as a result of the state's having received other escheat payments. Singleton declined comment on a report that two or three other significant settlements are in the final stages of negotiation.

He acknowledged that most of that money comes from banks and other financial services companies but said that other companies have significant amounts accumulated over a span of years .in the form of such things as uncashed dividend checks and accounts payable for which recipients cannot be found.

He dismissed a suggestion that escheat enforcement directed against major corporations could hurt Delaware's reputation as a business-friendly locale for incorporation. "Companies understand it is not their money," he explained, but added that some did not realize that they were required to turn it over to state government.

Minner earlier had said that her proposal to increase incorporation fees was understood by and acceptable to the corporate community.

2003. All rights reserved.

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