National economic woes force lawmakers to look for creative solutions

Delaware State News

DOVER — State lawmakers may not have been in an enviable position over the past few months as they approved painful cuts and tax increases to balance the budget, but they were not alone — leaders from nearly every state found themselves in similar circumstances.

According to the June 2009 Fiscal Survey of the States report, put out by the National Governors Association and the National Association of State Budget Officers, there were 35 states facing a budget shortfall for fiscal year 2010.

The report predicted state spending across the country to fall by 2.5 percent in this fiscal year. It had already fallen 2.2 percent in fiscal year 2009. The two-year drop in general-fund spending represents the first of its kind in the report’s history. Since the report began in 1979, there has been only one other time state spending decreased, in 1983.

While most states — 44 of them, including Delaware — have already approved balanced budgets, some have yet to approve a plan.

For a handful of states, including Michigan and Texas, it is because unlike most states where the fiscal year on July 1, their fiscal years begin later in the calendar year. For others it is because even as fiscal year 2010 was rung in on the first of July, their lawmakers were still squabbling to broker a deal.

California has stood out during this process for its inability to overcome an astronomical deficit in its budget — reportedly more than $25 billion.

To pass balanced budgets, national lawmakers have had to make difficult decisions.

In order to overcome Delaware’s $800 million budget deficit, lawmakers approved a series of tax increases totaling $211 million, utilized stimulus funds, cut state employees’ pay through a quasi-hybrid program by 2.5 percent, reauthorized a sports lottery and slashed funding from state programs.

"When you look at our shortfall as a percentage of the budget, it was one of the greatest in the country," said Gov. Jack A. Markell. "We all did what we had to do."

And Delaware is not alone in the fact that it looked into a plethora of options to cover its shortfall. Nearly every state has had to both raise taxes and cut spending.

"Given the depth of the current economic downturn, states have had to use every option they have. So they are using the federal funds; if they have reserves, they are using that. Then they’re going to spending cuts," said Elizabeth McNichol, senior fellow at the Center on Budget and Policy Priorities in Washington. "Raising taxes normally comes a little later in the process."

It is expected that after all states approve their fiscal year 2010 budgets, taxes will have been raised across the country by $23.9 billion. In fiscal year 2009, in total, state taxes across the country jumped by $726 million.

In terms of cuts, states have had to put all sorts of programs under the ax. Most notably targeted were personnel expenses; many states have approved, or are looking into, layoffs, furloughs and salary cuts.

As for other cuts, states appeared to try to avoid education and health agencies, but other than that, everything was fair game.

In Mississippi, government officials reportedly put limits on the number of bullets allotted to police departments; South Dakota will no longer subsidize mosquito-eradication programs; and in Vermont, lawmakers reportedly slashed all funding for highway rest stops.

While very few lawmakers would likely say they are happy by what they had to do, state officials, at least those from the states with balanced budgets, are breathing a sigh of relief that an agreement was realized.

In California, where a balanced budget has not yet been approved, the government is using IOUs to cover payments and tax refunds — a reported 91,000 have already been issued.

"It was a challenging cycle but we got through it, which not every state can say," said Gov. Markell. "When I read about challenges other states are still facing, I’m glad it’s done."

Joint Finance panel has less than $200,000 left to slice in fiscal 2010 plan

Delaware State News

DOVER — With waves from their magic wands — or more appropriately the consistent raising of hands voting yes — members of the legislative Joint Finance Committee transformed a projected $27 million blot of red ink Friday into a budgetary shortfall of less than $200,000.

Although the panel had anticipated having to cut only $18 million, they were quickly informed by state Controller General Russel T. Larson that the figure had jumped overnight to $27.1 million.

No problem. The JFC sealed and delivered the proposed cuts within a couple of hours.

"Good morning, class," Mr. Larson smiled as he started Friday’s session. "Based on Big Head’s meeting yesterday, we have some changes to our close-out numbers. Having said that, we’re going to pass out the magic list and go from there."

The "Big Head Committee" is a group of financial-leadership lawmakers who met behind closed doors Thursday to try to hammer out differences between Democrats and Republicans as Tuesday’s deadline for passing a balanced fiscal 2010 budget draws near.

State budget director Ann S. Visalli explained that an an additional $9.3 million can be cut from the state payroll next year as employees retire or leave state government. The figure, she said, is in addition to the $13.7 million already cut by eliminating 485 unfilled open positions.

"We will be coming to you with epilogue language (during the year) as these position become vacant," she said. "I think it’s going to be a really hard year and difficult to manage. There are many, many people in state government that are critical (in maintaining operations.) It will be tight, but it gets us where we need to be."

The JFC moved next to transfer $7 million from a cost-of-living adjustment account for municipal police officers to the general fund.

Ms. Visalli said the account, which is set aside each year as back-up funding for police pensions, is traditionally not used and normally shifted back to the general fund later. "We’re just doing it earlier this year,’’ she said.

Another $10 million in savings, Ms. Visalli pointed out, would come from "rate adjusted payroll contributions" during the year, mainly because the state expects a smaller total payroll in fiscal 2010 due to a 2.5-percent across-the-board pay cut for state workers, along with fewer filled job slots.

"When we budget for payroll, we budget for a variety of things, such as pensions and workman’s compensation," she explained. "It’s built into a rate. We looked at the rate and were able to come up with an additional $10 million in savings ... as a result of the decrease in salary lines by $13 million."

Mr. Larson, who on Thursday promised to come up with $600,000 in "reversions" from his controller’s office spending plan, said he worked into the night to craft an additional $152,700 slice in legislative expenses — ranging from mileage reimbursement reductions to cuts in travel costs to elimination of a juvenile detention oversight committee.

As with previous votes, JFC members readily agreed, providing Mr. Larson get a green light from the speaker of the House of Representatives and the president pro tempore of the Senate.

In another proposed mechanism to save money, the JFC approved a budget office plan to add epilogue language that would change the process used when collective bargaining between the state and its unions reach impasses.

Impasses currently go to arbitration, resulting in final binding decisions that must be adhered to by both parties.

"What we are requesting is that advisory fact-finding be the decision-maker," explained Michael Jackson of the budget office. "It is similar to arbitration but it is not binding. This is a result of the financial climate we are in."

Mr. Jackson said advisory fact-finding would apply to all state bargaining units.

When the meeting concluded shortly after noon, Mr. Larson noted the committee had reduced the $27.1 budgetary gap to approximately $160,000.

Next on the JFC agenda is grant-in-aid. Committee Vice-Chair Sen. Nancy W. Cook, D-Kenton, said that session will be scheduled Monday afternoon or early Tuesday.

Negotiations continue on more than $200M package

Delaware State News

DOVER — Although the Joint Finance Committee made significant progress over the week cutting from the state’s budget, a major aspect of the governor’s plan to cover the budget deficit — the more than $200 million in tax increases — remained in flux as of Thursday evening.

While legislators from both sides of the aisle have said they believe tax increases are necessary to close the nearly $800 million gap, disagreements over other issues led the House Republicans to vote down part of the package of taxes that had been brought up for a vote last week.

Since the House Democrats are one vote shy of the three-fifths majority necessary to pass revenue bills, they need the vote of at least one Republican for the tax legislation.

Republicans have taken advantage of the power that gives them by voting as a bloc against the alcohol and cigarette tax bills.

Republican leaders have said they will not consider the bills until Democrats agree to a plan to shrink the size of state government, essentially stalling the process.

But talks between the two groups have been occurring. And both sides seem encouraged by the discussions.

"As long as we’re talking, there’s progress," said House Minority Leader Rep. Richard C. Cathcart, R-Middletown.

"I feel pretty good," said Gov. Jack A. Markell. "We’ve had conversations the past couple of days."

Despite their optimism, the fact still remains that at the close of business on Thursday, yet another day had gone by without the General Assembly passing the $228 million worth of revenue bills.

During their work on Thursday, members of the House recalled the votes on the alcohol and cigarette tax bills, a move which had to be made within three legislative days of the original vote. But without an agreement being reached between the two parties, that was as far as they could go. The bills were laid on the table, to be worked another time.

"It was a parliamentary move," said House Majority Leader Rep. Peter C. Schwartzkopf, D-Rehoboth Beach. "We fully expect to work the bills at a later date."

But the time they have left to do that keeps ticking down. Legislators have until Tuesday to balance the budget.

"None of us particularly like the revenue bills, but we’re faced with an $800 million deficit," said Rep. E. Bradford Bennett, D-Dover. "I don’t particularly like doing it this late in the process."

"I was worried two weeks ago," said Rep. Schwartzkopf. But he added, he was "cautiously optimistic" after hearing about the negotiations.

The steadily approaching deadline was of concern to some, but others remained steadfast in their conviction that all would work out.

"I’m not panicking," said Rep. Cathcart.

In addition to the bills that would increase the taxes on alcohol and cigarettes, other revenue-generating bills that make up the needed $228 million include legislation that would up the corporate franchise tax, the limited liability company tax, the personal income tax, the gross receipts tax, the public utilities tax and other fees.

"None of us want to do this. But in these trying times, there are only two things we can do to balance the budget — cut and tax," said Rep. Schwartzkopf. "(Democrats) cannot do this ourselves, and quite honestly, I wouldn’t want us to. We should all be part of this process."

Even when both sides decide to vote on the merits of the bills, likely on Monday, there may be other issues that drag out the debate.

Some legislators have expressed concern about how these tax increases could especially hurt small-business owners and whether or not the taxes will be temporary.

Rep. Deborah Hudson, R-Wilmington, has already promised to add a one-year sunset provision to each of the tax bills.

Rep. Hudson said the taxes would need to be re-evaluated after one year to ensure they are not detrimental to economic development and the people of the state.

"Most of us want to see some sort of sunset," said Rep. Schwartzkopf. "Maybe after three years, but it can’t be one year."

The time legislators have to discuss these issues is ticking down. The General Assembly will meet next on Monday. Multiple committees will be meeting today and over the weekend.

"I feel confident that members of the House and Senate will come together to get this done," said state budget director Ann Visalli.

Joint Finance Committee to slash $18 million more in coming days

Delaware State News

DOVER — Delaware’s legislative Joint Finance Committee, eyeing a Tuesday deadline for crafting a fiscal 2010 state spending plan, sharpened their collective knives Thursday and slashed another $12 million from the proposed state budget.

But there’s more to come.

The panel is scheduled to return today at 9 a.m. to carve another $18 million from the plan through epilogue language and other means.

Controller General Russell T. Larson led the committee through $12 million in cuts from a variety of state agencies and programs during a three-hour period early in the day Thursday before the House and Senate settled into afternoon sessions.

But with a balanced-budget deadline looming in just days, he reminded committee members that their work was far from done.

"You’ve cut $12 million," he said. "There’s still $18 million we have to find, and we have to find it fast."

During the Thursday session, the JFC added to an already-significant 15-percent cut for grant-in-aid recipients, recommended by the governor, by increasing the reduction to 37 percent from the current year’s funding, saving the state almost $10 million.

According to Mr. Larson, this year’s grant-in-aid funding totaled $45.232 million. If the cuts are approved by the full legislature in the final budget package, grant-in-aid funding for fiscal 2010 will total $35.396 million.

Several entities, including paramedics and senior centers, were exempted from the 15-percent and additional cuts, Mr. Larson said. He noted that individual recipient cuts have yet to be determined and decisions will be forthcoming as to where they will be made.

"This will be very tough on some of those grant-in-aid agencies," warned JFC vice-chair Sen. Nancy W. Cook, D-Kenton.

The morning session also saw more than $6 million transferred from the state’s $40 million Tobacco Fund Reserve into the General Fund, as well as a $5 million federal rebate from the Medicare Part D program.

Pushing further, the committee ordered that a $1 million contingency fund kept in reserve by the Department of Services for Children, Youth and their Families be transferred to the General Fund.

As with many of the reversions, Mr. Larson called the decision difficult, but noted the department will now have to operate entirely within its approved budget for the year.

"Their case load is increasing at a ridiculous speed," he said. "This basically wipes out (anything to fall back on.)"

Another cut snipped $434,000 to fund the Delaware River Basin Commission, which will be rolled into the Department of Natural Resources and Environmental Control. Funding for the commission will now come from a "non-federal administrative account," Mr. Larson said.

Other reductions included $500,000 slashed from a $1.5 million fund that the Department of Education provides to low-performing schools; cutting a $154,000 grant to the Department of Labor for an individual-skills program, as well as $600,000 in specified "legislative reversions" such as travel and other expenses from various legislative accounts.

"Today’s cuts were very painful," said JFC chair rep. Dennis P. Williams, D-Wilmington North. "The next ones will be even more painful. As you keep looking for money, you really begin to run out of options."

Joint Finance Committee shortens session in wake of Adams’ death

By Leah Burcat

Delaware State News

Legislative Notebook

DOVER — With just a week left before the deadline to balance the budget, Monday saw the filing of additional bills to increase taxes in an effort to balance the staggering budget deficit.

Both House Bill 264, which would increase the personal income tax, and House Bill 266, which would up the gross receipts tax, are part of Gov. Jack A. Markell’s budget plan.

"It’s a product of discussion with all four caucuses," said Joseph Rogalsky, spokesman for the governor. "They are part of the plan to responsibly address the budget shortfall."

House Bill 264 would increase the personal income tax rates from 5.55 percent to 5.95 percent on taxable income ranging from $50,000 to $60,000; from 5.95 percent to 6.95 percent on taxable income ranging from $60,000 to $150,000; and from 5.95 percent to 7.45 percent on taxable income in excess of $150,000.

It would bring in $37 million for fiscal year 2010 and $97 million the following year.

House Bill 266 would increase the gross receipts tax by 10 percent. It would bring in $7 million the first year and $19 million in fiscal year 2011.

Other bills that are part of Gov. Markell’s plan that were also introduced on Monday include legislation to increase the taxes on lottery winnings, on public utilities and corporations.

Some Republican lawmakers said these tax increases are not the way to solve the budget crisis, and instead offered a solution no one yet has really talked about — layoffs.

"We should look into laying off positions that do not serve core government functions," said Rep. Thomas H. Kovach, R-Brandywine. "It’s not pretty; nobody likes to hear it; I don’t like to say it; but it’s got to be done."

In a press release dated Monday, Rep. Kovach, along with Reps. Deborah Hudson, R-Wilmington, and Greg Lavelle, R-Wilmington, said the increases in the personal income tax and pay cuts to state employees should be last resorts.

"We must address the government’s economic problems in the same fiscally responsible manner that the private sector does. This means we must not raise what we charge our customers, but we must cut staff and spending to balance the budget, while keeping the necessary, good employees at their current pay," said Rep. Kovach.

The legislators also suggested exploring further a furlough option for state employees and looking into other cost saving measures, such as cutting the community transportation fund and doing away with the prevailing wage.

It will now be easier to secure witness testimony thanks to legislation signed into law last week.

The new law provides incentives for those with information to offer testimony during a criminal investigation and trial.

"Witness testimony is often a critical element in solving crimes and obtaining convictions," said state prosecutor Richard Andrews. "This new law gives prosecutors new tools to secure testimony and evidence from witnesses and others so that we can hold offenders accountable."

House Bill 109 allows the Attorney General’s office to seek to modify, reduce or suspend the sentence, including a minimum mandatory sentence, of a person convicted of a state crime who provides "substantial assistance" in the identification, arrest, or prosecution of another person for state or federal offenses. The new statute replaces a substantial assistance provision that was limited to drug trafficking offenses.