are uncertain what effect Bank of America's
acquisition of M.B.N.A. Bank will have on the
Delaware economy and the state budget. They are
reasonably certain, however, that the aftermath of
the Hurricane Katrina disaster will have, at worst,
The Delaware Economic and
Financial Advisory Council, at its meeting on Sept. 19, will
forecast that state revenue in the current fiscal year,
ending June 30, 2006, will amount to $3,019.7 million, a 5%
increase from the $2,877.6 million taken in during fiscal
After adjusting for changes
affecting revenue made by the General Assembly before it
adjourned at the end of June, the forecast adds $13.7
million to what the council expected when it forecast fiscal
2006 revenue earlier that month.
Of the $56.6 million that
legislative action knocked off from fiscal 2006
expectations, $29.5 million is an accounting adjustment
related to school district debt service. The next largest,
$16.7 million, results from reductions in the gross receipts
tax. A special farmland-preservation fund takes $10 million
from the real estate tax.
The June forecast was $4.6
million higher than what actually was realized.
Mathematically, that figures out to a one-point-five
hundredths of 1% margin of error.
David Gregor, the Department
of Finance's liaison with the council, said the new
projections do not ignore the fact that the Bank of America-M.B.N.A.
deal will doubtless have significant effect, but added
that there is not enough information available to evaluate
Moreover, he added, the
Council's practice is to base its forecasts on known
conditions rather than speculation, no matter how informed.
It does not, for instance, take into account pending
But, he said, the September
forecast will go with an advice to the state budget office
to be cautious in drafting the proposed budget that Governor
Ruth Ann Minner will present to the Assembly in January.
"This is a year when they're
going to need a 'Plan B', an alternate scenario. ... This is
a real exercise, not a drill," he said.
The council's periodic
forecasts are designated as the official basis for
calculating the state budget.
Gregor indicated that an
obvious cause for concern with regard to state revenue
is the effect of layoffs that are certain to come. That will
be cushioned by severance packages and capital gains from
exercising stock options and selling M.B.N.A. stock with the
full effect not taking hold until fiscal 2007.
Council member David Swayze,
who also is a member of the gubernatorial taskforce
evaluating the bank merger, said it is not likely that there
will be hard data concerning the number of Delaware-based
jobs to be lost much before the turn of the calendar year.
Also unlikely to be known is
whether units of the merged bank will be chartered in
Delaware. Whatever charter decision is made is certain to
have an impact on the state's bank franchise revenue. But,
he added, the effect "will be nowhere near" what was
previously speculated in a newspaper article on the subject.
Moreover, he said, "we expect
to be given an opportunity to participate in that decision."
Gregor also said that he
expects Delaware officials to be involved in other decisions
arising out of the acquisition. "This is a two-way process
[and] we're just starting the process," he said.
He cautioned against a
premature rush to lower revenue expectations because that
could send a signal to "the people who actually make the
[final] decisions that Delaware is waving the white flag."
Another economic area likely
to be affected by a cutback from the present level of
M.B.N.A. operations in Delaware is real estate. The bank
operates out of several sites in downtown Wilmington and
throughout New Castle County. Bank of America has said
it intends to base a merged credit card unit in Delaware.
The most likely M.B.N.A. site
to be a victim of a reduction in the scope of operations is
the one at Ogletown. Somewhat ironically, that is where the
present bank located when it was a unit spun off by the
former Maryland National Bank. If so, it is believed that
the satellite and related business activity connected with
expanding Christiana Care Health System could fill the void.
The official forecasters are
agreed that the hurricane will have an overall minor effect
on the national economy and, with little direct economic
connection with the Gulf Coast region, virtually none on the
Delaware economy. The region accounts for about four-tenths
of 1% of national output.
Unlike what happened in the
aftermath of the Sept. 11, 2001, attacks on the World Trade
Center and Pentagon, the national economy is now in a growth
mode, compared to recession then. Moreover, Gregor said, the
terrorist attacks confronted the nation with an
unknown, while a natural disaster, although major, does not
carry a similar connotation.
"It's not going to put us in
a recession, but it could cut [the rate of economic]
growth," he said.