Forecasters fear indicators warn of recession

From the Delaware State News

Delaware State News

NEW CASTLE — Economic forecasters slashed state revenue projections by $41.2 million Monday, signaling a slowdown in the economy and leaving state budget writers with less money in an already lean fiscal year.

The Delaware Economic and Financial Advisory Council decreased revenue estimates for fiscal 2008 and ’09 from its September figures, citing economic indicators that warn of a possible recession.

"There are a lot of moving parts, but it’s also based on the prediction of a recession," said DEFAC revenue subcommittee chair Dr. Kenneth Lewis. "Now we’re at the point where we have to be serious about including it in our forecast."

Revenue estimates dropped by $12.3 million in fiscal 2008 to $3.38 billion, and by $28.9 million in fiscal 2009 to $3.52 billion.

Personal income tax, gross receipts tax, cigarette tax and lottery revenues fell in both years, while franchise tax and insurance tax revenues crept upward.

It is the second consecutive DEFAC meeting in which revenues plummeted. In September, the council cut its revenue projections by $32.7 million.

Office of Management and Budget director Jennifer W. Davis said the state has survived in tight fiscal times before and would manage state finances accordingly.

"The governor has built financial plans in good times and in very, very lean times before," Mrs. Davis said. "This is not like fiscal 2002 (when revenue estimates fell $150 million), but it’s a time to be extremely cautious.

"We are going to focus on core services — keeping troopers on the street, providing those 24-7 services we offer, maintaining Medicaid and providing teachers for classrooms."

Funding door-openers — items needed to maintain the state’s services — might be all the state is able to do, leaving new projects and initiatives on the back burner, said Sen. Nancy W. Cook, D-Kenton.

"In a year like this, door-openers could be the entire (budget increase)," said Sen. Cook, a co-chair of the legislative Joint Finance Committee, which crafts the state budget from the governor’s proposed spending plan.

"These next six months will be very long."

During Office of Management and Budget’s fiscal 2009 budget hearings last month, state agencies proposed $287 million more than fiscal 2008’s $3.29 billion budget, an 8.7 percent increase.

One of the largest proposed increases is a door-opener, $41.4 million for the rising cost of Medicaid.

The state did not impose any financial controls Monday, but Mrs. Davis said officials would discuss in January whether to implement any management controls.

Faced with the $150 million shortfall in 2002, Gov. Ruth Ann Minner imposed a hiring freeze.

While Mrs. Davis said the state has to be fiscally cautious, she and Secretary of Finance Richard S. Cordrey said it is too early to start discussing possible tax and fee increases.

"We’re not going to take any shortsighted gimmicks or budget cuts," Mrs. Davis said.

Mr. Cordrey said the state has a few more DEFAC meetings to see how revenues change before making a decision on raising additional funds.

Several of Delaware’s strongest revenues continued to tumble.

Personal income tax, the state’s largest revenue source, fell by another $29.4 million Monday after plummeting by $31.4 million over the two years in September.

Realty transfer tax, which decreased by $14.3 million in September, is projected to fall by $2.1 million.

And DEFAC is estimating that the lottery, the state’s fourth-largest revenue source, will decrease by $11.8 million over two years, but officials expect a recovery later in the fiscal year due to Harrington Raceway and Casino’s expansion. Dover Downs also is expanding its casino.

But Dr. Lewis said he is more worried about the corporation income tax — the state’s sixth-largest revenue source — in the event of a recession. The source is projected to decrease by $800,000.

"If a recession hits, that could decrease by $40 million," Dr. Lewis said. "This is a problem for us."

Gov. Ruth Ann Minner is scheduled to roll out her proposed fiscal 2009 budget next month.