State officials face arduous task of budget cuts

2009, 2010 ‘a lot worse than we ever imagined’

Delaware State News

WILMINGTON — Gov. Ruth Ann Minner reinstituted a hiring freeze and ordered state agencies to identify 7 percent in budget cuts this fiscal year after a state economic forecasting committee slashed revenue projections over two years by more than $455 million Monday.

The governor also asked state offices to submit cuts of up to 15 percent for the upcoming fiscal year, with the proposed 2010 budget due to be presented in January.

"Unfortunately, we must take immediate action to reduce state spending in light of the continually deteriorating economic forecast," Gov. Minner said in a prepared statement Monday.

"We have had a number of management controls in place since the beginning of the fiscal year. We will make these even more restrictive to ensure that we continue to balance the budget. Unfortunately, even with our best efforts, this is a problem that will not be resolved for several months."

The announcement came on the heels of a special meeting of the Delaware Economic and Financial Advisory Council’s revenue subcommittee, which was called due to last month’s collapse of several financial institutions and Maryland voters approving slots earlier this month.

The last time the panel held a special meeting to address a wildly fluctuating economy was in October 2001, a month after 9/11. DEFAC’s next regularly scheduled meeting is Dec. 15.

The unofficial revenue estimates painted a bleak picture for the state, with nearly every revenue category falling and a previously predicted recovery in fiscal 2011 being dashed.

"I think there are three headlines here," said Dr. Kenneth Lewis, revenue subcommittee chairman and University of Delaware economics professor.

"(Fiscal) 2009 is going to be worse than we thought … 2010 is going to be a lot worse than we ever imagined … And we thought we’d come out of it at some point, but it won’t be 2011.

"We’re looking at major, major revisions to fiscal 2010 and fiscal 2011."

Revenue estimates for fiscal 2009 fell by $151.7 million Monday, which would actually plunge Delaware into the red if the state’s $3.491 billion in operating costs — operating budget, cash to the capital budget and grant-in-aid bill — remain intact and the $3.26 billion revenue estimate doesn’t change.

Office of Management and Budget acting director Michael S. Jackson said the governor’s call for 7 percent in cuts this year would result in $130 million-$180 million in reductions, which would balance the operating budget and provide a little cushion.

Revenue projections for fiscal 2010 plummeted by $303.7 million Monday, which Mr. Jackson said would present a serious challenge in assembling a proposed spending plan, with state agencies presenting their requests to the OMB this month.

In September, DEFAC dropped its revenue estimates for fiscal 2009 by $38.9 million and for fiscal 2010 by $91.3 million.

"This is a challenge that is going to take several months to resolve, probably right up until June 30," he said. "What you’re seeing in the forecast (Monday) is reflective of the national economy."

Mr. Jackson said that while all options are on the table to dig the state out of the financial hole, some are less tenable than others.

"We will look for where we can cut first and exhaust every option — base-budget cuts, government re-engineering," he said. "Layoffs would be a last resort … There are no easy choices as we move forward."

Sen. Nancy W. Cook, who serves on DEFAC and co-chairs the budget-writing Joint Finance Committee, said the legislative panel likely would begin cutting from the 2009 budget shortly after session begins in January.

"It’s probably going to be a repeat of last year and probably be at a greater magnitude," said Sen. Cook, D-Kenton. "I look for January to be very busy."

One option that Sen. Cook said she personally wouldn’t push for would be to tap the state’s rainy day fund, which the state has never done.

Gov. Minner’s call for mid-year 7-percent budget cuts would not apply to public or higher education.

The hiring freeze does not include the legislature, judiciary, higher education or local school districts, and it doesn’t apply to previously approved positions in health and safety, 24-hour institutional settings or employees who are eligible for return to merit rights and critical transition hires.

The fiscal controls implemented Monday are in addition to a review of purchase orders greater than $2,500 and a freeze on job reclassifications, both of which have been in place for several months.

Gov.-elect Jack A. Markell, who serves on DEFAC as the state treasurer, said the state must look to weather "the perfect economic storm" and be prepared to grow the economy in a new direction.

During the two-hour meeting, revenue subcommittee members briefly discussed whether the economic climate qualified as a mild recession or a severe one, a distinction Gov.-elect Markell said afterward is immaterial to the average family.

"Frankly, those words don’t mean very much," Gov.-elect Markell said. "We’re talking hundreds of millions of dollars and thousands of families being affected. To them, there’s nothing that’s mild about this recession.

"Every time you talk about an uptick in the unemployment rate … this is not just about numbers, this is not just about percentage points; these are real Delaware families struggling to stay in their houses, struggling to keep their health care and struggling to put food on the table.

"We’ve got to remember that this is about real people."

The governor-elect declined to outline specific proposals for cutting expenses and how to improve the economy, noting that "there is only one governor at a time." He did say that he plans on setting an example by not filling every position in the governor’s office when he takes over on Jan. 20.

He also is soliciting cost-savings suggestions from residents, who have submitted hundreds of ideas at his transition Web site, http://www.markelltransition.com.

Delaware State News

DOVER — The General Assembly passed several tax and fee bills designed to close a budget gap of more than $200 million, but some of the bills ran into a roadblock in the Senate Thursday, leaving the fate of the spending plan in question.

Legislative leaders have agreed to a series of tax and fee hikes that would raise $86.2 million in ongoing revenue and about $100 million in one-time money to bail the state out of a $214 million shortfall.

But a proposal to increase alcohol licensing fees for retailers and wholesalers failed in the Senate on the heels of a gross-receipts-tax hike that squeaked by with the bare minimum number of votes — after the Senate had to revote because it failed the first time.

That brought the night to an abrupt halt in the Senate, with legislation increasing the alcohol tax by 50 percent left on the table after passing the House with just enough votes.

Senate Majority Leader Sen. Anthony J. DeLuca, D-Newark, said the licensing fees bill could be reconsidered Monday — the last day of session — and the other tax bills should move forward then, too.

"It’s no big secret that it’s a balancing act between the fiscal package and the budget," Sen. DeLuca said. "For every cent we’re short on one end, it will have to be made up on the other end."

That could mean that the legislative Joint Finance Committee, which crafts the operating budget, could be forced to reconvene. The panel finished the budget last week.