Delaware State News

DOVER — Delaware revenues, which have been in the tank throughout this year, received an unexpected $63.3 million windfall Monday morning that had state finance officials double-checking the numbers and some lawmakers pleased but concerned.

Details of the corporation income tax estimated payment were limited due to state laws that prohibit divulging the tax payments of individuals or companies, but the wire transfer was reported at 11 a.m., hours before the state’s revenue projection committee was slated to meet.

Deputy Secretary of Finance Thomas J. Cook said the one-time capital-gains payment was due to the partial liquidation of one private corporate entity’s interests into a private Delaware partnership.

Joint Finance Committee co-chair Rep. William A. Oberle Jr. said "one entity of a larger group of entities went out of business" and its interests were swallowed up by the larger group.

"They thought they slipped a decimal place," Rep. Oberle, R-Newark, said of the $63.3 million payment. "It had to be billions of dollars to close down that entity (for Delaware to receive that much money)."

The windfall, combined with other revenue estimates approved by the Delaware Economic and Financial Advisory Council, increased the state’s overall revenue projections by $66.5 million, dropping a $217.3 million shortfall to about $151 million.

But state budget officials and legislators on the budget-writing Joint Finance Committee cautioned that while the money coming in is a blessing, it is a one-time payment that likely should not be used to solve the operating budget deficit.

"I’m happy to get the $63 million," said Rep. Peter C. Schwartzkopf, D-Rehoboth Beach. "Does it throw a monkey wrench in everything we’ve been doing on Joint Finance? Absolutely.

"We’ve been talking about cutting the budget for the last month … this is going to cause a whole different set of problems."

During four weeks of mostly closed-door hearings, the JFC has cut $86.8 million from the governor’s proposed $3.41 billion fiscal 2009 budget, while legislative leaders have been discussing a series of proposed tax and fee increases, with the cuts and hikes expected to meet in the middle of the shortfall.

Rep. Schwartzkopf said he is concerned that the last-minute revenue could complicate the budget process because lawmakers and residents might assume that the cash influx solves the state’s operating-budget crunch.

"There’s already been talk (among some JFC members) about rolling back some of the cuts," he said, noting that the committee "folded tent" shortly after news of the windfall broke and the committee is not scheduled to meet today after being slated to meet every day this week.

Rep. Oberle said the panel still expects to finalize the budget this week.

Rep. Schwartzkopf and Office of Management and Budget director Jennifer W. Davis cautioned against using one-time money for the operating budget.

"I hope people know the difference between ongoing, sustainable revenue and one-time money," Mrs. Davis said. "One-time money isn’t a fix" for the operating budget).

"If we were to start to restore base-budget cuts with one-time money, we would have a bigger structural problem for (fiscal 2010)."

Instead, Mrs. Davis and Rep. Oberle separately suggested that the money be used primarily for capital projects, which is where one-time money often is allocated.

"We have $183 million worth of school-construction referendums that have passed that haven’t been funded," Mrs. Davis said.

Rep. Oberle said the JFC still is in cut mode, but indicated that while most of the $63.3 million should go toward capital projects, some could be used for operating expenses, such as reinstating the Medicaid buy-in program.

JFC members have lamented cutting the $928,600 Medicaid buy-in program, which would allow those with disabilities to work full-time and maintain their Medicaid benefits by paying a little extra based on their income.

While the money is welcome, Rep. Schwartzkopf said the nature of the 11th-hour revenue and the lack of details — even though it’s due to state law — could rub residents the wrong way and raise doubts.

"It’s not just public distrust, but legislative distrust about where the money came from," he said. "I would like to know where it came from … I specifically asked (Mr. Cook), and he wouldn’t tell me.

"I have questions. I would like to know a little more about where the money came from because I’d like to know how to answer the calls I’m going to get from constituents."

Mr. Cook insisted that he did not know of the payment until 11 a.m. Monday, noting the DEFAC’s revenue subcommittee met Friday to go over the numbers and there was no indication that this windfall was coming.

"We were asking whether we missed something in the Wall Street Journal or something like that," he said.

In addition to the spike in the corporation income tax, revenues climbed in fiscal 2008 in abandoned property ($10 million) and fell in personal income tax ($7 million.)

In fiscal 2009, DEFAC increased its abandoned-property estimate by $8 million and decreased personal income tax by $7 million and corporation income tax by $5.3 million.

Although it is not factored into the fiscal 2009 problem, revenues for fiscal 2010 fell by $32.8 million Monday, and by $278.3 million since December.

But Senate plan flies in face of state constitution

Delaware State News

DOVER — Delaware’s version of Robin Hood descended on Legislative Hall Wednesday, with legislators proposing to increase personal income taxes for the rich to give to the poor.

The proposal, Senate Bill 312, would create a new upper tax bracket for those earning $150,000 or more annually and set their tax rate at 7.95 percent, 2 percent higher than the current top rate for those earning $60,000 or more.

But the bill could be finished before it starts due to a constitutional conflict.

"I believe that those who benefited from the 1995-2005 (economic boom) should be willing to step up to the plate here," said sponsor Sen. Robert I. Marshall, D-Wilmington.

"I believe … those who (receive assistance from) grant-in-aid and other parts of the human services arena should be protected."

Sen. Robert L. Venables Sr., D-Laurel, who is one of the five Democratic senators who are sponsoring the bill, said seeing the cuts to organizations such as the Food Bank of Delaware and reductions in Medicaid services forced him to sign on.

Lawmakers are grappling with a projected $217.3 million revenue shortfall that budget writers and legislative leaders are attacking by cutting the proposed $3.41 billion fiscal 2009 budget and looking for tax and fee increases.

As part of those cuts, several nonprofit groups and senior centers have seen their funding slashed by 8 percent, and legislators cut a new Medicaid buy-in program, which would allow those with disabilities to work full-time and maintain their Medicaid benefits by paying a little extra based on their income.

Delaware last increased personal income taxes (PIT) in 1974 to 19.8 percent for the top bracket, then cut taxes 12 times during the next 26 years, including seven times from 1996-2000.

Creating the new tax bracket for those earning $150,000 or more, which would take effect Jan. 1, would generate about $35 million in fiscal 2009 and $100 million in the following years.

"That’s not pocket change," Sen. Marshall said.

But the proposal, introduced late Wednesday, has a very short shelf life — it’s unconstitutional.

According to the state constitution, tax bills must start in the House, noted Senate Majority Leader Sen. Anthony J. DeLuca, D-Newark, who chided Sen. Marshall while he talked about the bill on the Senate floor.

But Sen. Marshall said afterward that his proposal is designed to start a dialogue that he doesn’t feel is happening in Legislative Hall, despite lawmakers saying repeatedly that "all options are on the table" with regard to solving the budget crunch.

"PIT has not been on the table," Sen. Marshall said. "The distinct feeling that has prevailed in this building is that it’s an election year, and PIT is something that will not be considered.

"This (bill) will give more visibility to the issue. We are a laboratory of public policy. This could help move it to the forefront of discussions."

Regardless of where the bill is introduced, it already has staunch opposition from Republican lawmakers, with several senators shocked at the proposal.

"I think when you’ve got an economy as shaky as ours and you’re looking for business investments," said Senate Minority Leader Sen. Charles L. Copeland, "to take money out of the economy and put it in a bloated state bureaucracy that is now the largest industry in the state of Delaware, it’s just the wrong place to put dollars."

Delaware State News

DOVER — When it comes to the slot machines that bring in millions of dollars in nickels, dimes and quarters each year, state lawmakers want a bigger piece of the action.

Faced with a projected $217.3 million revenue shortfall and a desire to raise half of it through tax and fee increases, a group of legislators floated a proposal Wednesday to increase the state’s share of slots revenue, which could generate $38.1 million annually.

According to financial reports from the Delaware State Lottery Office, over the last five years, the tracks have collectively realized a total of $1.36 billion from slot-machine revenue.

Rep. Deborah D. Hudson, R-Wilmington, said that the budget crunch has forced lawmakers to turn to its "business partners, the casinos" to split the slots revenue 50-50.

She noted that the three casinos — Delaware Park, Dover Downs and Harrington Raceway & Casino — collected about 47.5 percent of net revenue ($301.9 million) in fiscal 2007, while the state’s share was 35.5 percent, or $225.7 million.

"We get significantly less," Rep. Hudson said. "We have established them as a monopoly, and given these economic times, it’s time for them to pony up.

"I can’t go to my constituents and say we’re going to raise taxes without going for a split with the casinos."

But Dover Downs CEO Edward Sutor said the casinos have expenses and taxes that eat up the bulk of those revenues, leaving the Dover racino with 12 percent in profit.

"The state’s share is almost three times that," Mr. Sutor said. "The state gets the biggest chunk, while we get left with the rest of the costs.

"It doesn’t sound like a lot, 6 percent, but the bottom line is we only make 12 percent … (The proposal) could put a big damper on all three casinos with how much investment we could put into the facility."

Dover Downs, Mr. Sutor said, has invested millions of dollars into its casino operations, building a 500-room hotel and completing a massive $56 million expansion this year.

The proposal would not affect the revenues that are dedicated for horsemen and the vendors supplying and maintaining the slot machines.

Under the measure, the state and the casinos each would get about 41.5 percent of the net revenue, phased in over three years, with the state getting 2 percent more and the racinos 2 percent less each year.

Based on fiscal 2007 revenue, that would translate into an additional $12.7 million being dumped into state coffers in fiscal 2009, $25.7 million in 2010 and $38.1 million when fully implemented.

Slots currently is the state’s fourth-largest revenue source.

"At one time, you could have justified this disproportionate take," said Rep. Gregory F. Lavelle, R-Wilmington. "The tracks took a risk and invested considerable capital in new slot-machine facilities. At the time, no one knew if they’d be a success.

"Those days are long over. The tracks have enjoyed a mind-bogglingly lucrative monopoly on slots gaming and have been more than compensated for their initial risk."

Supporters of the measure noted that the casinos could get a monetary boost if discussions to expand their operating hours on Sundays and allowing them to open on Christmas and Easter come forward as proposals.

The Video Lottery Advisory Council has estimated that allowing play on Sunday mornings could generate an additional $6.7 million annually, while play on the holidays would generate another $1.9 million each year.

Rep. Hudson said she intends to circulate the bill for signatures before filing it, and she hopes to hold a hearing for it in the House Revenue and Finance Committee, which she chairs, Tuesday.

Senior centers, drug help groups cut by state panel

Delaware State News

DOVER — Senior centers, community groups and cultural, health and alcohol- and drug-abuse organizations had their state funding slashed by 8 percent Wednesday, leaving some groups to figure out how to make ends meet.

The legislative Joint Finance Committee cut $2.1 million from a proposed $47.7 million grant-in-aid budget for fiscal 2009 but did not touch the state’s volunteer fire companies or veterans organizations, which comprise $6.9 million of the spending plan.

As the largest senior center in Delaware, Dover’s Modern Maturity Center likely wouldn’t lose the full 8 percent, but executive director Carolyn Fredricks said the impact still will be felt and could result in some program cuts.

"Everyone has to bite the bullet so we can get to the bottom line and make everything fit," said Rep. Nancy H. Wagner, R-Dover, who serves on the JFC.

"It’s sure going to have an impact on those groups. You look at the total amount they’re getting and you hope they can work around it. It’s difficult to cut those funds."

Lawmakers are looking to close a $217.3 million gap between revenue projections and the governor’s proposed $3.41 billion budget through a series of budget cuts and tax and fee increases.

During its two weeks of hearings that concluded last week, the JFC cut $40.5 million from the 2009 budget, and slashed another $26.6 million Wednesday, including the $2.1 million from grant-in-aid.

All of those decisions must be approved by the entire General Assembly when voting on the final budget document later this month.

JFC member Sen. Bruce C. Ennis, D-Smyrna, a former Citizens’ Hose Co. fire chief, said he was relieved that the committee did not cut funding for the fire companies.

"Everyone seemed receptive to helping the fire companies, especially ambulances," said Sen. Ennis, noting that skyrocketing gas prices have put a strain on the departments.

"(Any cuts) would’ve had a major impact on the operation of ambulances and fire engines."

But Sen. Ennis noted that there are still plenty of cuts that could be made in the coming days and the fire companies could be revisited, which would fall in line with state budget officials’ mantra that "all options are on the table."

"I think, philosophically, that as we work through these cuts, everyone should be part of the solution," said Office of Management and Budget director Jennifer W. Davis.

The JFC snipped $583,016 from $7.4 million for senior centers statewide, although not all facilities would be hit with an 8-percent funding cut.

JFC co-chair Rep. William A. Oberle Jr., R-Newark, said that the amount each center receives — and would be cut — is based on a formula that takes into account the facility’s efficiency and services it provides to seniors.

Those that offer more services and serve more seniors would lose a smaller percentage of funding. The Modern Maturity Center will be affected.

"One of the areas that will be cut is the mileage reimbursement for drivers for our Meals on Wheels program, and that’s mainly seniors who volunteer to drive," said Ms. Fredricks.

"At this point, we realize that the state has had to make difficult decisions, and that’s forced us to make difficult decisions."

The senior center received more than $450,000 in the 2008 grant-in-aid bill. Ms. Fredricks said that until it is determined exactly how much will be cut, it is difficult to determine whether the Modern Maturity Center will have to charge more for services or eliminate some services.

Other organizations will face an across-the-board 8-percent cut in grant-in-aid funding.

Dover nonprofit homeless shelter Shepherd Place received $52,000 in the 2008 grant-in-aid bill and stands to lose $4,160, which director Lakena Hammond said will leave the facility searching for ways to cut costs.

"We have to figure out other ways to cut expenses," Ms. Hammond said. "We might not turn the air conditioning on, well, maybe at all until we hit 90 (degrees). We need to look at everything.

"I hope other agencies (that provide funding for the shelter) don’t follow suit or we won’t be able to stay open."

Other agencies that stand to lose significant funding include Food Bank of Delaware ($20,560), Kent-Sussex Industries ($8,000), Aid in Dover Inc. ($7,520) and Delmarva Rural Ministries ($5,100).