Proposals to increase fees on alcohol, cigarettes, may return next week

Delaware State News

DOVER — Three bills that would have raised the tax on alcohol and cigarettes and increased the fees for alcohol licenses — and helped the state find the funds to cover a nearly $800 million budget deficit — failed in the House on Thursday. But, they are not yet dead.

Legislators could recall the vote within three legislative days. While recalling the vote will not be difficult, changing the outcome of the vote appears as though it may be.

The vote down party lines emphasized a rift deeper than just a difference of opinion on taxes.

House Republicans, who voted as a bloc against the bills, said they felt ignored and left out of the political process.

"We are participants in this process if we’re sitting on this side of the aisle or not," said House Minority Leader Rep. Richard C. Cathcart, R-Middletown.

Gov. Jack A. Markell said that was not the case, that instead the House Republicans were unwilling to make the tough decisions necessary to get the state through the budget crisis.

"I’m disappointed. We still don’t have the bipartisan support we need," said Gov. Markell. "Not a single Republican has voted to make the tough revenue decisions."

Each of the bills required a three-fifths majority to pass — which means that all of the Democrats and at least one Republican would need to vote "yes."

All 16 of the House Republicans voted "no" to each of the measures. House Majority Whip Rep. Valerie Longhurst, D-Bear, switched her vote to "no" so that she would be able to recall the vote at a later date.

Only a member of the prevailing side can make the motion for a vote to be recalled.

Before the voting even began on Thursday, the outcome was apparent.

Rep. Cathcart stood up and spoke for his caucus. He said the Republicans were uncomfortable voting on revenue-enhancing bills without knowing what the entire package would look like.

"Voting on revenue bills in a piecemeal fashion is, quite frankly, a disservice to the taxpayers," he said.

House Majority Leader Rep. Peter C. Schwartzkopf, D-Rehoboth Beach, said the enormity of the budget deficit, coupled with the fast-approaching deadline to balance the budget, made it necessary that they start getting things done.

"We’re going to have to do a lot of things we don’t want to do," said Rep. Schwartzkopf.

There was little debate on the measures after the initial comments were made by the party leaders. Much more discussion was likely done in caucus, which lasted more than two hours before the representatives came out onto the floor.

The discussion that did occur centered on amendments that Rep. Deborah Hudson, R-Wilmington, placed on the tax bills. Her amendments, which ended up failing, would have sunset the taxes after one year.

As the voice vote on the amendments was occurring, representatives yelled their "yeses" and "nos" so loudly, the microphone system went down for a few minutes.

"I went not voting. I don’t want to be charged for fixing that," joked Rep. Joseph W. Booth, R-Georgetown, during the only light moment of the evening.

After the votes were tallied, Gov. Markell and other Democratic leaders held an impromptu press conference to vent their frustration.

Gov. Markell said he had been offering to meet with the House Republicans for weeks, that he had breakfast with Rep. Cathcart recently to discuss the proposal and that staff members had delivered all of the information the Republicans had requested.

"We’ve lost another week. My hope is that we get back to a bipartisan approach," said the governor.

When asked what was going to be done to get the bills passed, he said "that’s going to be up to (the Republicans)."

Rep. Cathcart said the Republicans would stop standing in the way when they were included in the process and when they could see an entire package.

He said that without knowing what budget cuts were going to be made, how much stimulus money would be coming into the state and what other taxes were being proposed, they could not vote on individual measures.

The General Assembly must pass a balanced budget by June 30.

Gov. Markell said there was not yet another plan to raise the $22 million that was expected to be generated through these taxes.

"We are really working to get these passed," he said.

Federal money will replace lost cash for two years

Delaware State News

DOVER — Although the Joint Finance Committee voted Thursday to take 7 percent across the board from the state funds going to each institution of higher education in Delaware, the institutions will not yet feel the budget cuts thanks to federal stimulus funds.

The University of Delaware would see a $8.8 million cut, Delaware State University would have their funds cut by $2.5 million and Delaware Technical & Community College would see a $4.6 million cut.

Although the schools are facing serious cuts, the money will be replaced for the next two years with money from the American Recovery and Reinvestment Act of 2009.

Despite the reprieve right now, Controller General Russell T. Larson said it was just putting off the pain.

The money "will drop off the charts in fiscal year 2012," he said. "It is just deferring the hurt."

Members of the committee disagreed over whether or not to include epilogue language that encouraged the institutions of higher education to cut the pay of their employees by 2.5 percent.

Since it is a public institution, employees at Delaware Technical & Community College would receive the same salary cut as other state employees.

University of Delaware and Delaware State University are both public-private institutions and the state does not control how they pay their employees.

Rep. Joseph E. Miro, R-Pike Creek, said he thought the statement was necessary since the committee had already voted to cut the pay of other state employees.

But some legislators were opposed.

"I respectfully and vehemently disagree with that premise," said Rep. Melanie George Marshall, D-Bear. She said she did not like the idea that the committee would be setting the precedent of telling institutions that do business with the state that they must cause their employees pain if they can avoid it.

"I never thought I’d say this, but I agree with Rep. Miro on this," said Rep. James J. Johnson, D-Wilmington.

"I actually agree with Rep. Marshall. So I guess we’re all switching sides," said Rep. Joseph W. Booth, R-Georgetown.

Proposals would increase fees on personal income, corporations

Legislative Notebook

Delaware State News

DOVER — In an effort to close the state’s budget deficit, Rep. John A. Kowalko, D-Newark, introduced multiple tax bills on Wednesday.

The bills would add new brackets to the personal income tax, increase the corporate franchise tax and raise the tax on limited liability corporations.

The goal of the bills is to "generate revenue to displace the need for the pay cuts (for state employees)" Rep. Kowalko said.

Some of the bills cover the same fields and serve as multiple options for legislators.

House Bill 238 would increase the personal income tax to 6.95 percent for all income between $60,000 and $100,000 in a year. It would also increase the tax to 7.95 percent for all income over $100,000.

The legislation would bring in $90.5 million annually.

House Bill 239 would raise the tax on limited liability corporations by $50 a year to $300 per year. The increase would raise $29 million a year for the state.

House Bill 240 would increase the corporate franchise tax from $165,000 a year to $195,000. The proposal would bring in $45 million annually.

Gov. Jack A. Markell proposed increasing the tax to $180,000 in his budget recommendation in March.

House Bill 241 would increase the tax on limited liability corporations by $25 annually. The tax of $275 a year for LLCs would bring in $14.5 million for the state.

House Bill 242 would adjust the personal income tax so that all income between $25,000 and $60,000 is taxed at 5.65 percent, all income between $60,000 and $100,000 is taxed at 6.95 percent and all income over $100,000 is taxed at 7.45 percent. The legislation would bring in $74.5 million a year.

"The alternative is to hamper our economy," said Rep. Kowalko.

Senate President Pro Tempore Thurman Adams Jr., D-Bridgeville, 80, was hospitalized after feeling ill over the weekend, said Senate Majority Leader Anthony DeLuca, D-Newark.

Sen. Adams was taken to the hospital for testing. Information regarding the type of tests he was undergoing was not available.

He will hopefully return to the Senate next week, said Sen. DeLuca. Sen. Adams was elected to the General Assembly in 1972.

State Workers United for a Better Delaware presented a proposal on Wednesday of ways to raise money without cutting the pay of state employees.

Coalition officials said the pay cut for state workers hurts the entire state because it reduces the amount of money going into the economy.

In their proposal, which includes ways to raise $530 million, they suggested increasing the tax on limited liability corporations by $100 a year, upping the corporate franchise tax and reinstating the inherited wealth tax, among others.

In addition, the coalition recommended granting a casino license to the Del Pointe project in Millsboro.

"Del Pointe is a no-brainer," said Delaware State Education Association president Diane Donohue. "They are willing to pre-pay $20 million. How can we not look at that?"

Gov. Markell said he is looking into all of the proposals, but also said the state cannot tax its way out of the budget crisis.

Legislation that would allow the sale of beer and wine in grocery stores was tabled in the House Revenue and Finance Committee on Wednesday.

House Bill 193 failed to garner enough support because legislators were worried about how much it would cost to regulate the trade.

Abandoned property audit helps increase estimate by $8.5M

Associated Press

NEW CASTLE — A state panel on Monday gave a modest boost to the official revenue forecast Delaware lawmakers will use in fashioning a budget for the fiscal year that starts July 1.

Members of the Delaware Economic and Financial Advisory Council voted to increase the revenue estimate for fiscal 2010 by $8.5 million compared to last month’s estimate.

The increase was largely attributable to an expected $20 million settlement involving an abandoned-property audit. Modest increases in estimated lottery proceeds and personal and corporate income tax revenue also helped offset a $17.5 million decrease in estimated bank franchise taxes and a $4 million drop in projected gross receipts taxes.

The panel also decreased bank franchise and gross receipts estimates for the current year by a combined $13.1 million, which was offset by upward revisions in income taxes and miscellaneous revenues, leaving a net increase of $2.8 million over last month’s estimate.

The revenue update is the last that members of the Legislature’s budget-writing Joint Finance Committee will be able to use as they try to finish work on a budget for the new fiscal year. The committee voted last week to cut state employees’ pay by 2.5 percent for fiscal 2010, but lawmakers will have to approve additional cuts, as well as tax and fee increases, to reach the balanced budget required under state law.

"There are no 11th-hour changes to the projections that will allow us to avoid making the very difficult decisions that need to be made over the next few weeks to balance the budget," Gov. Jack A. Markell warned in response to the latest revenue estimates.

According to the revised numbers, revenue for the fiscal year ending June 30 is expected to be 6.2 percent less than last year’s total. A similar 6.4 percent is expected in the new fiscal year compared to the current year.

"Dozens of tough decisions remain, and we need a bipartisan consensus to produce a balanced budget," Gov. Markell said.

Despite the modest upticks in revenue estimates Monday, officials said Delaware’s economy continues to struggle, particularly in the financial services sector.

"Here’s the problem," DEFAC revenue subcommittee chairman Ken Lewis said as a chart showing trends in the bank franchise tax was projected on a screen.

Officials expect bank franchise tax revenue to total about $82 million this year, compared to $130 million last year.

"The June collections were just half of what the bank commissioner’s office was expecting," Lewis noted.

The bank franchise tax forecast for next year is even dimmer, with estimated revenue of only $34 million.

"Essentially, the large credit card banks are sort of out of the picture for next year ... Basically, this is an industry that’s going through turmoil and structural change. Who knows what it’s going to look like in two years?" Mr. Lewis said.

Increases look to be certainty as clock beginning to run out

Delaware State News

DOVER — As legislators continue with their work of balancing the budget this year, tax increases are not just a possibility, but nearly a guarantee.

While the Joint Finance Committee has voted on hundreds of millions of cuts, they have not gone even as far as Gov. Jack A. Markell suggested in his budget recommendation. The committee reduced the pay cuts for state employees from 8 percent to 2.5 percent; and reinstated money to the public school transportation fund, the transportation reimbursement fund for parents of non-public-school children, the phragmites control program and to the school nurse program, among others.

The state is facing an $800 million budget shortfall for fiscal year 2010. Gov. Markell suggested cutting the operating budget by $526 million and finding the rest through revenue generation, the sports lottery and federal stimulus funds.

With the Joint Finance Committee choosing to cut less than the governor suggested, so far — it appears the only way the state will meet its constitutionally mandated goal of a balanced budget by June 30 is by upping taxes even more than the governor recommended.

Legislation has already been introduced that would increase the alcohol tax, raise the tax on cigarettes, up the alcohol licensing fee, tax seasonal rental properties and authorize the sale of beer and wine in grocery stores.

On Wednesday, the alcohol and cigarette taxes were released from the House Revenue and Finance Committee despite a strong showing of opposition from the public.

Owners of restaurants, liquor stores and convenience shops showed up to share their fears about the bills.

Carrie Leishman, of the Delaware Restaurants Association, said the increase in fees and taxes would mean that many struggling eateries would go under.

"This comes at a very, very bad time," she said.

Roger Roy, representing the tobacco retailers’ association, said the increase in the cigarette tax would lead to fewer sales to out-of-state buyers and ultimately a loss of jobs in the state.

The tobacco industry employs 935 people in Delaware — the tax increase could likely cause that number to drop by 130, he said.

Four individuals, representing health organizations, did speak in support of the cigarette tax increase. No one spoke in support of raising the alcohol tax.

Despite the lack of support, legislators said the bills were necessary to solve the state’s serious budget dilemma.

"I didn’t expect to walk in here and have everyone happy," said House Majority Leader Rep. Peter C. Schwartzkopf, D-Rehoboth Beach, the sponsor of the bills that would increase the cigarette and alcohol taxes. "We need this money to solve a budget crisis."

Even if all of the taxes introduced so far were passed as is, they are not expected to bring in more than $40 million in the first year.

Where will the state recoup the rest of the money needed to balance the budget?

Gov. Markell also suggested upping the personal income tax by 1 percentage point on all income more than $60,000 and increasing the corporate franchise tax.

The increase in the personal income tax would bring in about $30 million and the corporate franchise tax could bring in more than $80 million.

Such legislation has yet to be introduced. When it is introduced, it will likely need to be at even higher rates than suggested by Gov. Markell.

And it is likely those taxes will face just as tough opposition as the taxes introduced already.

Time is ticking down. There are only five official legislative days left for lawmakers to find the answers.

No consensus reached after committee meets

The first bill sponsored by members of the Small Business Caucus, House Bill 85, was placed on the House agenda on Tuesday.

The legislation would reform rating rules for small employer group health insurance by compressing the top and bottom insurance rates, reducing the variance between rate premiums and limiting the adjustments that can be made year to year.

Delaware State Chamber of Commerce senior vice president of government relations A. Richard Heffron said that it is not uncommon for some individuals to see a 25-percent spike in their health insurance premiums.

The legislation would cap those adjustments at 15 percent. Mr. Heffron said the bill would help control rising costs of health insurance for small businesses and their employees, adding predictability to the process.

Rep. Gerald W. Hocker, R-Ocean View, introduced legislation, House Bill 203, on Tuesday that would designate the strawberry as the state fruit.

Millions expected to be raised by new legislation

Delaware State News

DOVER — Delawareans heading to their favorite convenience store to pick up a pack of cigarettes or going to the liquor store for a bottle of wine may soon see prices rising as legislators got one step closer on Wednesday to raising taxes on alcohol and tobacco.

Legislators voted to release from a committee bills that would increase the tax on alcoholic beverages, raise cigarette taxes, and increase the alcohol licensing fees.

Despite a strong showing of public opposition to the measures, state lawmakers said the state’s ever-increasing budget shortfall made the move necessary.

"I didn’t expect to walk in here and have everyone happy," said House Majority Leader Rep. Peter C. Schwartzkopf, D-Rehoboth Beach, the main sponsor of all three bills. "I’m not happy either."

The state is facing a nearly $800 million budget shortfall for fiscal year 2010. Lawmakers are still trying to find $26 million by June 30 to cover this year’s shortfall.

The tax on alcoholic beverages — which would increase 2 cents per can of beer, 3 cents per five ounces of wine, and 15 cents per 750 milliliters of liquor — is expected to help reduce the deficit by $5.3 million in fiscal year 2010. It is expected to bring in $8.8 million in fiscal year 2011.

Increasing the cigarette tax from $1.15 a pack to $1.60 per pack would raise $16 million for fiscal year 2010 and $21 million in the following year. The increases in the alcohol licensing fees are expected to bring in about $600,000 a year.

Despite the state’s need to balance its budget, many small business owners said they believed the state was actually doing itself a disservice.

By hitting small businesses, especially restaurants and liquor stores, with multiple fees and taxes at the same time, the state was going to see many companies laying off workers or going under altogether, which would mean a decrease in the revenue generated from the personal income tax and other taxes paid by the businesses.

"In a good year our profits are razor-thin," said Carrie Leishman, of the Delaware Restaurant Association. "This comes at a very, very bad time."

More than 30 members of the public spoke at Wednesday’s meeting of the House Revenue and Finance Committee.

Four individuals — representatives of the American Heart Association, American Cancer Society and the American Lung Association, and a doctor — spoke in support of the tax increase on cigarettes. They said that the increase in cost would lead to fewer young people starting the habit.

All the rest spoke out against the idea of increasing taxes.

A major concern of the group was that Delaware would lose the competitive advantage it currently holds over nearby states in regards to alcohol and cigarette sales because of its low taxes.

In response to these concerns, Rep. Deborah Hudson, R-Wilmington, said she would be attaching amendments to all of the bills that would sunset the taxes after one year.

"We will be able to see if there was a profound effect on business," she said.

"I have no problem revisiting all of them," said Rep. Schwartzkopf, although he did say he worried that one year would not be enough time for the state to recoup the money it needs.

The three bills now head to the House floor for a vote.

Rep. Gerald W. Hocker, R-Ocean View, introduced legislation, House Bill 203, on Tuesday that would designate the strawberry as the state fruit.

By Leah Burcat

Legislation that would move school board elections from their current date on the second Tuesday in May to coincide with the general elections in November passed in the House on Tuesday.

Supporters said the measure, House Bill 117, would help save the state money and increase voter turnout for school board elections. Opponents argued that the move would politicize school board elections.

In the future presidents could be elected through popular vote, if legislation introduced in the House on Thursday passes, and similar legislation in other states garners approval.

House Bill 198 would enter Delaware into an interstate compact known as the Agreement Among the States to Elect the President by National Popular Vote.

States are given the authority to decide the manner of awarding their electoral votes — states involved in the contract would agree to award its electoral votes to the presidential ticket that receives the most popular votes in all 50 states and the District of Columbia.

Currently states award their electoral votes to the ticket that receives the most popular votes in their particular state.

The contract would go into effect when enough states have joined that the group possesses a majority of electoral votes.

Five states have already joined into the agreement — Hawaii, Washington, Illinois, Maryland and New Jersey — and together they have 61 electoral votes. The group would need to have 270 votes to reach a majority.

Legislation introduced by Rep. Earl Jaques, D-Glasgow, on Tuesday would ensure that those who recklessly kill one of Delaware’s first responders is eligible to be punished to the fullest extent of the law.

Under current Delaware law, a person who recklessly causes the death of an on-duty law-enforcement officer, corrections employee or firefighter is guilty of murder in the first degree and eligible for capital punishment.

House Bill 204 would add paramedics, emergency medical technicians, fire marshals and fire police officers to the same statutes.

The first bill sponsored by members of the Small Business Caucus, House Bill 85, was placed on the House agenda on Tuesday.

The legislation would reform rating rules for small-employer group health insurance by compressing the top and bottom insurance rates, reducing the variance between rate premiums and limiting the adjustments that can be made year to year.

Delaware State Chamber of Commerce senior vice president of government relations A. Richard Heffron said that it is not uncommon for some individuals to see a 25-percent spike in their health insurance premiums.

The legislation would cap those adjustments at 15 percent. Mr. Heffron said the bill would help control rising costs of health insurance for small businesses and their employees, adding predictability to the process.

Rep. Gerald W. Hocker, R-Ocean View, introduced legislation, House Bill 203, on Tuesday that would designate the strawberry as the state fruit.

Del. workers’ pay cut proposal still on the table

Delaware State News

DOVER — When the legislators return on Tuesday, one issue will take center stage — the budget.

Legislative budget writers made progress toward closing the $800 million budget gap during the two-week Joint Finance Committee break that ended on Thursday, but the legislature still has significant ground to cover.

Of Gov. Jack A. Markell’s $526.7 million in budget solutions — the remainder comes from revenue generators — the Joint Finance Committee so far approved $264.6 million in cuts.

The majority of cuts came from travel, contractual, fuel and employee-recognition costs. Personnel expenses were not looked into.

"We’ve been working hard but we’ve still got a way to go," said Rep. Dennis P. Williams, D-Wilmington, the committee’s co-chairman. "We still have some big areas to look at and time is not our ally."

One major issue still on the table is the governor’s proposed salary cut for state employees.

And although even the governor has said repeatedly that he does not like the idea, and legislators have spoken out against the proposal, little has been done to ensure the safety of state workers’ pay.

A balanced budget for fiscal year 2010 must be approved by June 30. The General Assembly must still also find a way to fill the $26 million gap for the current fiscal year.

"They’ve been working very hard," said state budget director Ann Visalli. "And we’re over halfway there."

So far, the committee has enacted about $69 million in cuts recommended in the budget former Gov. Ruth Ann Minner submitted before she left office in January. It also has trimmed about $5.8 million in Medicaid reimbursements to health care providers and cut about $8.5 million from department budgets.

Additionally, the committee has approved using about $130 million in federal stimulus money to shore up Medicaid, the federal-state health insurance program for low-income families.

Sen. Nancy Cook, D-Kenton, the committee’s co-chairwoman, said the committee is working with the administration to see how cuts in areas, such as education, will affect the flow of federal stimulus money to the state.

"We need to be careful when we’re making cuts, because we don’t want to jeopardize the stimulus money," she said.

In regard to the $26 million that needs to be found for this fiscal year, Ms. Visalli said the money will likely come from savings from keeping state positions vacant or from program lines that have slowed down their spending.

Wherever it comes from, it needs to happen quickly — there are only 13 more legislative days left before June 30.

Making the matter even more challenging is that the numbers could change. The Delaware Economic and Financial Advisory Council, the group of economic experts that gives the state its financial forecasts, meets once more before the budget deadline.

The council’s revenue predictions for the state have steadily decreased since last June. If the numbers drop again this June, it could leave legislators scrambling to find funds.

"We’re hoping [the] June [DEFAC forecast] will hold steady," said Ms. Visalli. "If June holds steady we’re just going to continue the path that we’re on."

"Right now, it’s like trying to find change in the couch," said Ms. Visalli.

The Joint Finance Committee will continue its deliberations on Monday.

Despite the challenges, committee members said they’re optimistic that they’ll bring in a balanced budget on schedule.

"I’ve been on this committee for a long time," said Sen. David McBride, D-Hawks Nest. "I’m confident that we’re moving in the right direction and that we’ll get this done."