January 30, 2003

Early on, Governor Ruth Ann Minner decided against any 'quick fixes' in the course of realigning state spending with the realities of the slump in the national economy. The result is a clearly painful proposed state budget for the coming fiscal year placed before the General Assembly.

Among other things, it calls for:

  • Cutting the state workforce by at least 400 positions by continuing the hiring freeze and permanently eliminating vacancies that have been or will be 'frozen';

  • No pay raises for state employees except those for which the state is contractually obligated;

  • Reducing the level of state financing of public schools by $10 million, with the reductions aimed at things other than classroom staffing and activities;

  • Stretching out school construction and renovation projects;

  • Using the state's spending muscle to slow the rate of growth in both Medicaid and employee health plan costs;

  • A 17% increase in corporate franchise taxes and fees, but no parallel increase in franchise costs for banks;

  • 'Uncoupling' Delaware's estate tax from the federal estate tax, which is being phased out, and doing the same with tax on dividend income if President Bush's proposal to eliminate such income from federal taxation is enacted.

There also is a proposal to morph the Department of Public Safety into a state Department of Public Safety & Homeland Security by moving the emergency management agency into the existing organization. The Division of Motor Vehicles would be moved into the Delaware Department of Transportation. Its boiler safety division would go to the Department of Natural Resources & Environmental Control.

The state's three privately-owned race tracks would be permitted to extend operating hours of their slot machine casinos and add more machines, but the state would take a larger portion of the additional revenue that generates through imposition of a surcharge.

The tax on cigarettes would be more that doubled, going to 50 from 24.

The governor is asking for a 3% reduction in the amount distributed as grants to nonprofit organizations.

Capital spending would be pegged at $392.3 million, down from $407.1 million in the present fiscal year.

Cutbacks in what are described as "nonessential state services" initiated to meet this year's revenue shortfall would be continued.

Those are the highlights of a complex package of proposals dealing with both the spending and revenue sides of the $2.4 billion budget presented to the Assembly on Jan. 30.

General fund spending would be 1.7% higher than this year, the lowest increase since fiscal 1992. If increases in the cost of things mandated by existing laws, are taken out of the budget, "we actually would have negative growth," said budget director Jennifer ' J.J.' Davis.

The governor took the unusual step of going before a joint session to explain her proposal, rather than just sending over a thick document crammed with numbers prefixed with dollar signs.

The intent is to underscore the seriousness of the budget crisis and continue an education program to muster public support for attacking it at the roots, according to Davis. Those roots are wrapped around what she and others, including the governor in her Sate of the State address, have been referring to as a "structural problem."

Simply stated, there is a $300 million gap between maintaining the present level of state spending and anticipated revenue. Not until fiscal 2006, would revenue match what the Assembly originally voted to spend this fiscal year.

There isn't -- as has been widely reported by some media -- an actual 'budget deficit', either in this fiscal year nor the one which begins on July 1. That is because the state constitution forbids deficit spending and because there is not yet a budget for next year.

The proposal Minner submitted is a balanced budget. It meets the constitutional requirement that spending not exceed 98% of anticipated revenue.

The most recent forecast by the Delaware Economic & Financial Advisory Council, based on current tax rates and laws governing other revenue streams projects revenue for fiscal 2004 to amount to $2.3 billion. Minner's proposals on that side of the ledger would boost income by $144.5 million.

Governors, of course, do not decree state budgets; that is a legislative function. The Assembly is about to go into recess for six weeks to allow its Joint Finance Committee time to study Minner's proposal through a series of hearings and begin to craft the actual budget for adoption toward the end of the present legislative session in June.

Davis said that the finance committee and the Assembly as a whole have, in the past "acted in a responsible and nonpartisan way" when it came to dealing with basic state finances. "I expect nothing less for the future," she added. The executive branch will "cooperate fully" in the process, she pledged.

Secretary of Finance David Singleton indicated that the revenue-raising requests are defensible beyond their crisis-addressing attributes. The cigarette tax, for instance, would be half of what it is in Pennsylvania, Maryland and New Jersey and lower than in 32 other states. Corporate franchise rates have not been raised in more than a decade and company executives are likely to regard this increase as "reasonable" in comparison with much higher increases in other costs of doing business, he said.

Both the governor and the Assembly are required by law to use financial council forecasts as the basis for preparing the budget. The panel is scheduled to meet four times between now and when the final vote is taken. Since economy watching is not an exact science, each of those meetings is expected to produce revisions in the forecasts.

If they show revenue likely to increase, Davis said some of the requested curbs on spending can be dropped.

If the changes go the other way, the situation becomes more painful, according to Gregory Patterson, Minner's press secretary. "There is not much more she can cut and still sleep at night," he said, adding that would probably "put us in the position where we have to do what other states have done."

Mitigating against casting Minner's proposals to the Assembly totally into a sea of gloom and doom is a claim that Delaware's situation vis--vis its sister states is comparatively rosy. Among the comparisons offered are Tennessee's dropping 250,000 people from Medicaid rolls, Kentucky releasing convicts before completion of their sentences, Arizona's selling state office buildings, Colorado putting public schools on four-day weeks and layoffs of government workers in Virginia and New Jersey.

Davis said that fiscal prudence here "has been reaffirmed by Wall Street." Delaware is one of only eight states whose bonds are rated triple-A, the highest granted by the three major rating agencies. 

2003. All rights reserved.

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Get more information about this topic

Go to the governor's Web site for additional budget information
Read  the press released issued in conjunction with governor's budget mesage
Read related Baltimore Sun story: It's slots or tough budget cuts, [Maryland] governor to warn Assembly

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