according to Secretary of Finance David Singleton, the coming
fiscal year will be the first since 1970 in which anticipated state
revenue will be "significantly lower" than in the previous year
-- if the advisory council's current take on the outlook holds
Only 1991 saw any such glitch and that was only a one tenth of
one percent drop.
made the comment after the panel officially declared
that the state is in for so-called 'negative growth' in the year
which begins July 1 unless the General Assembly acts to boost
income. It forecast a 3.4% decline from the $2,440 million
now projected as revenue in the year about to end.
director Jennifer Davis said that is the result of continued
'structural defects' in the revenue system. Governor Ruth Ann Minner has proposed,
and the Assembly is considering, a 17% increase in incorporation
taxes and fees as well as a doubling of the cigarette tax rate
and other measures to add about $150 million on the revenue side
while government spending is held in check by a like amount.
acknowledged that the original $300 million need she sought to
address in the budget she proposed has come down "a little bit
since January," but he said the gap "remains well in excess of
$250 million." He declined to be more specific.
advisory council's latest projections "clearly show we continue
to have a serious problem," he added.
Delaforum previously reported that it would do, the panel, at
its meeting on June 16, increased its estimate of income
by $17.6 million to $2,439.8 million. That compares to actual
collections totaling $2.425.7 million in fiscal 2002. It
anticipates a $1.5 million decline in the coming year, which
would take it below the 2002 level.. (CLICK
HERE to access previous Delaforum article.)
forecast means that legislators, who are bound by law to use the
advisory council's prediction as the basis for the state's
operating budget, will have $2,472.8 million to work with. That
is $16 million more than was thought in May. The state debt
limit, which also is pegged to the forecast, is now $117.9
happens in families when the margin between income and spending are discussed,
there was a bit of bickering among panel members before they
decided on the bottom line. Jeffrey Bullock, chief of staff to
former Governor Thomas Carper, ended up casting a very rare
negative vote when it came to endorsing the working committee's
proposed estimate for fiscal 2004. The council usually approves
committee proposals by unanimous voice votes.
objection was to the fact that Minner asked
for and the General Assembly agreed to setting up a special fund
for the one-time federal grant provided by the recently enacted
tax law. Delaware stands to get about $50 million, spread over the next
two years. Had half of that amount been available to apply to
its fiscal 2004 forecast, the advisory council would have more than wiped out the
anticipated revenue decline.
said he agreed with creating a special fund, but objected to it having been done ahead of the council's meeting, when the merits of doing so could have been
publicly discussed outside of the legislative arena. Noting that
the expected adverse impact of the federal tax cut on personal and
business income taxes had been factored into the revenue
forecast. Bullock objected to "using half of the equation, but
not the whole thing."
disagreed on the grounds that the federal grant is intended to
provide for states to finance federally mandated programs, particularly internal
security, which are not accompanied by money to pay for them. That, he said, differs from the effects of changes in
federal tax law which directly impact state revenue. Delaware personal
and business income taxes are linked to the parallel federal
separate context, the finance secretary said that President
George Bush's continuing penchant for federal tax cutting bodes
further negative impact on Delaware and other states that
'piggyback'. But, he said, the convenience the arrangement
provides for state tax payers offsets that. Minner's budget
package does include 'uncoupling' inheritance taxes, which are
being phased out at the federal level under a previous law.
other hand, if the President and his supporters are correct and
the federal tax cut stimulates the economy, Delaware and
other states stand to gain tax revenue. "It all depends on how business
reacts to the tax cut," David Gregor, the Department of Finance
staff member who prepares and presents its forecasts, told the
committee chairman Kenneth Lewis noted that the committee was
sharply divided over what to recommend. Its members questioned
how much faith they should put into the continuing effort to
collect escheat money. Banks and other corporations are required
to turn over so-called 'abandoned property' to the state and
federal courts have ruled that the state of incorporation is the
one that is entitle to get them.
after that money, Delaware now uses a dual system of
voluntary submission and audits, targeting major corporations
incorporated here as objects of the latter.
result, it appears that escheat will bring in $235 million this
year, up from $156 million last year. Although no one on the
advisory council seemed to notice, that is the third largest
revenue stream this year -- behind the $426.6 million that
incorporation taxes and fees are expected to net. Personal
income tax, which is expected to net $706.9 million, is far and
away the largest category.
divided committee finally settled on a prediction that
'abandoned property' income will slip back next year to the 2002
level although the Department of Finance clearly doubts that
will happen. "There seems to be on-going strength" in the
collection effort, Gregor said.
depends on audit activity," Singleton said. "We have a lot of
wells out there, but we don't know what's in them."
there is at least one early sign that Delaware corporations
which are hit up for significant payments could make some
defensive moves. A major retail chain, for instance, has decided
to set up a new subsidiary to handle its gift-certificate
business but to incorporate that company in Ohio. Delaware
claims unredeemed certif8icates to be subject to escheat while
Ohio does not and that is significant to that particular company
and probably other large national retailers.
council also was stymied in trying to assess the impact on
Delaware if neighboring Pennsylvania and Maryland decide to
sanction casino gambling.
said the department tried to get a handle on it by determining
travel distances of winners of large puts -- whose winnings are
documented under federal Internal Revenue Service requirements
-- who now come to Delaware Park, near Stanton, or Dover Downs.
The conclusion was that Delaware would 'lose' about $30 million
during the first full year of operations in Pennsylvania from
its share of gambling revenue. That, he said, would increase to
between $35 million and $36 million if a venue in Chester, Pa.,
study will be done for Maryland. A much less comprehensive one
done two years ago resulted in a $50 million setback.
considered inevitable that both states will eventually approve
gambling, but politics in those capitals seems to dictate that
it is not imminent. "It's going to be a hit," said Robert Byrd,
chairman of the advisory council. "But I think we're going to
make a lot of money [from gambling] for a long time," he