BLOG +plus+


September 16, 2005


Forecasters 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, minimal impact.

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 2005.

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 its magnitude.

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 legislation.

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.

2005. All rights reserved.

Return to Delaforum Newsfront

Get more information about this topic

Read previous Delaforuim article: Revenue growth contrinues

What is your opinion about the topic of this article?
Click here to express your views.