Delaware State News

DOVER — State House Minority Leader Richard Cathcart, R-Middletown, and House Minority Whip Dan Short, R-Seaford, detailed a plan addressing the state budget situation in a letter sent Wednesday to Gov. Jack A. Markell and members of the Joint Finance Committee — the group of 12 lawmakers currently crafting the next budget.

"With respect to our budgetary challenges, we’ve been repeatedly told that ‘everything is on the table,’" Rep. Cathcart stated in the letter. "It’s time we put that pledge to the test."

Reps. Short and Cathcart said they put the plan together using ideas from wherever they found them. "Some of the suggestions originated with us, many came from the governor, still others came from legislators, groups and private citizens," Rep. Short said. "By drawing from a diverse set of sources, we believe this is a plan that gets us a long way towards solving our budget crisis."

The suggestions included in the plan were selected based on:

•Maximizing existing resources;

•Reducing costs;

•Cutting the size of the state government to position Delaware for the future;

•Minimizing the impact to taxpayers, state employees and teachers.

The plan cites $227.1 million that is already available to meet the FY 2010 shortfall. This includes revenue the state has received via federal stimulus money, as well as money the state will get through sports betting, table games and the redistribution of net slot-machine proceeds.

There are also nearly $335 million in cost-cutting and revenue-generating suggestions for FY 2010. Taken together, the plan would close $562 million of the $800 million shortfall.

Additionally, there are suggestions that would save an additional $206.5 million annually, starting as early as FY 2011.

"These are ideas that would save state taxpayers a huge amount of money, but would realistically take at least a year to implement," Rep. Short said. "However, we need to undertake these initiatives now so we can start the process of positioning Delaware for an uncertain future."

Among the proposals is a suggestion to trim the state work force by 4,000 over the next four to six years via attrition, returning the work force to 27,500 — about its size in 2000.

According to the State Pension Office, at least 200 state workers and teachers leave state service each month. Assuming 75 percent of these workers are essential employees that must be replaced, the state could still reduce its work force by 600 workers via attrition in FY 2010 alone.

"We believe this is a conservative estimate," Rep. Cathcart said. "In fact, we anticipate the pace of this drawdown will naturally accelerate in future years as the performance reviews that Gov. Markell has ordered are completed and agencies are reorganized for greater efficiency."

The plan includes two tax increases, which are modified versions of suggestions Gov. Markell made as part of a package of six tax hikes. The state personal income tax would be raised by 1 percent for those making over $60,000 and one-half of 1 percent for those making less. The plan would also raise the corporate franchise tax.

"We kept the tax increases to an absolute minimum in this plan and, with the idea that state revenues will rebound as the economy strengthens, both of these changes would expire or ‘sunset’ after three years," Rep. Cathcart said.

Joe Rogalsky, a spokesman for Gov. Markell, said the governor and his staff are reviewing the GOP plan.

"The governor is looking at those proposals," Mr. Rogalsky said. "Some of their ideas he has already proposed. He will be working with the General Assembly over the next six weeks to address the budget shortfall. He does have concerns about plans to increase taxes that place the burden on the middle class."

Both Reps. Cathcart and Short said the plan isn’t intended as a final solution, but has the potential to jump-start talks by providing a base on which to build.

"This plan would bridge more than three-quarters of our budget gap, drawing from ideas of Republicans and Democrats alike," Rep. Cathcart said. "Not all of the people in my caucus are happy about all the items in this plan, just as I’m sure the governor and other lawmakers will have issues with some aspects. I’m not thrilled with some of it, but that’s kind of the point. Everyone is going to need to concede some ground to get to the place where we collectively need to be."

Highlights of the plan include:

•Cut the State Work Force Via Attrition: Trim the state work force by 4,000 workers over the next four to six years via attrition. This would return the work force to its approximate size in 2000. According to the State Pension Office, each month approximately 100 employees apply for pension and another 100 apply for pension withdrawals. Even assuming that 75 percent of these 2,400 workers that leave state employment annually are essential employees that must be replaced, the state could still reduce its work force by 600 workers via attrition in FY 2010 alone.

$27 million (FY 2010 & $180 million annually when fully implemented.)

•Institute a Tax Amnesty for Delaware: In 11 states where this has been implemented recently, the states reaped an average of .41 percent of their annual revenues as a result of the amnesty.

$12.3 million (FY 2010)

•Temporarily Lift Spending Cap: Currently, the state can only spend 98 percent of projected revenue (Title 29, Section 6533). We should temporarily raise this threshold to 99 percent of projected revenue. This would leave the state with a prudent one-percent buffer and, more importantly, safeguard Delaware’s top bond ratings by leaving the Rainy Day Fund fully intact. This action would allow the state to use available revenue, while still leaving a $200M safety net (one percent buffer and Rainy Day Fund) in place.

$30 million (FY 2010)

•Take Back Bottle Bill Money: Currently, beverage distributors collect the deposits on bottles as part of Delaware’s container law, but the bulk of this money is not redeemed by consumers. This money should be considered escheat property and revert to the state.

$3 million (annually)

•Reform Student Transportation Spending: Track the number of students being bused to/from school and pay transportation reimbursements based on these actual numbers, rather than paying reimbursements for all students eligible for transportation. Many eligible students use other means to get to/from school. (Assumes saving 10 percent of the $66 million that state pays school districts for student transportation.)

$6.6 million (annually)

•One-year Cut to CTF: Temporarily cut, for one year, the Community Transportation Fund of all state legislators by $100,000. Transfer saved money from the Transportation Trust Fund to the General Fund. This would expire or "sunset" after one year.

$6.2 million (FY 2010)

•Temporarily Raise the Personal Income Tax: Temporarily raise the PIT, increase the brackets for those making below $60K by one-half of 1 percent. Increase the brackets for those making $60K and above by one-percent. This progressive tax increase would "sunset" after three years.

$40 million (FY 2010), $104 million (FY 2011)

•Temporarily Raise Corporate Tax: Raise the Corporate Franchise Tax, to "sunset" after three years.

$97.4 million (FY 2010), $73.2 million (FY 2011)

•Sale of Unused/Surplus Items:

Sell all three fixed-wing State Police aircraft and explore partnership with air flight program at Delaware State University for legitimate uses of fixed-wing aircraft (i.e., Delaware Dept. of Natural Resources and Environmental Control surveys, marijuana interdiction, etc.).

Sell state-owned golf courses, with a covenant the land be maintained as a golf course or some other open-space use.

Sell former MBNA building near Rodney Square, Wilmington.

Sell one or both state-owned marinas.

$20 million (FY 2010)

•Corporate Report Filing Fee: Increase annual corporate report filing fee from $25 to $40.

$4 million (annually)

•Temporarily Suspend Open Space Programs: Temporarily re-allocate special funds (farmland preservation, open space, and DelDOT) to General Fund.

$40 million (FY 2010)

•Temporarily Suspend Automatic Raises: Suspend "salary step increases" for public school teachers, State Police and DelTech instructors. Also, continue the freeze of all career-ladder promotions initiated during FY 2009.

$11.5 million (FY 2010)

•Cut Contractor Costs: Reduce contractor, consultants and employment services by 10 percent.

$7.5 million (FY 2010)

•Disability Eligibility: Modify the eligibility to receive benefits under the state’s short-term-disability program from 20 days to 60 days.

$3.5 million (annually)

•Holiday Swap: Replace three existing state holidays with floating holidays state employees could take at their discretion.

$1 million (annually)

•Qualify Senior Property Tax Exemption: Means-test senior-property-tax program.

$9 million (annually)

•Eliminate Vacant Positions: Eliminate vacant positions and reduce use of seasonal/casual employees.

$3.5 million (FY 2010)

•Medicaid Change: Adjustment to Medicaid in-patient hospital "outlier methodology."

$3.8 million (annually)

•Raise Recording Fee: Increase Mortgage Recording fee to $25 and use proceeds to fund operating cost at Dept. of State.

$5.3 million (annually)

•Minor Reorganization: Delaware Health Care Commission Moved to DHSS (Markell proposal).

$2.9 million (annually)

Suggestions for Cost-Cutting Beyond FY 2010

•Reduce State Construction Costs:

Temporarily suspend prevailing wage for all school construction and other state projects for four years. Study the impacts.

$70 million (annually)

•Save money on school construction by standardizing designs and leveraging better prices on the purchase of materials.

$14 million (annually)

•Reform Purchasing for Public Schools. Implement a "centralized procurement program" for local school districts, vocational-technical school districts and charter schools.

$25 million (annually)

•Consolidate School Administration. Save on administration and support costs by replacing local services for the 19 school districts with broad, shared services on a regional or statewide basis. Local school districts would be kept intact, but this action would significantly reduce the inefficiency of duplication.

$30 million (annually)

•Reform state purchasing. Establish and enforce policies for unified billing and minimize use of state-issued checks and state-owned credit cards to appropriate purchases.

$60 million (annually)

•Efficiency Rewards Program. Create a program whereby state employees and private citizens can make suggestions to cut costs and/or improve efficiency. If the idea has merit and is implemented, the person submitting the idea would get 10 percent of the estimated first-year cost savings, capped at $25,000 max. (Assumes a savings of one-quarter of 1 percent of the operating budget.)

$7.5 million (annually).

Health, Children’s departments face cuts

Delaware State News

DOVER — The Joint Finance Committee was back at work on Wednesday trying to find ways to cut the budget.

On the cutting block for the day were the following departments: Health and Social Services; Children, Youth and Their Families; and Finance.

In total, the committee found $126 million in savings from the Department of Health and Social Services, and cut $1.1 million from the Children’s Department, and $129,000 from the state’s financial agency.

The majority of the Health and Social Services savings will be offset by federal stimulus funds passed earlier this year.

The cuts come primarily from travel, contractual, employee-recognition and supply expenses. Personnel costs for the agencies have not yet been looked into.

One major development was the exclusion of a healthcare provider tax, which failed to garner significant legislative support last year, and a subsequent $15 million in cuts to the Department of Health and Social Services it was supposed to cover.

Such a tax leverages federal matching dollars and is employed by more than 40 other states.

Under the proposal introduced last year, the state would have implemented a 1.95-percent tax on hospital revenues, which would generate about $30 million. That would trigger a 50-percent federal match of $15 million. The state would increase its Medicaid reimbursement to the providers to repay the $30 million.

Wayne A. Smith, Delaware Healthcare Association president and chief executive officer, said the health care provider tax would end up harming hospitals throughout the state, in part because they all are private, nonprofit institutions.

"The provider tax would be very injurious to hospitals," Mr. Smith said. "Hospital taxes cannot be designed so there are not winners and losers."

Although former Gov. Ruth Ann Minner suggested in her budget recommendation that it be used to generate $15 million, Gov. Jack A. Markell and the members of the Joint Finance Committee decided to look to other sources to find the funds.

In addition, Joint Finance Committee members proposed raising recordation fees from $6 to $30 for each document or paper recorded or filed.

The additional money would go into the Delaware Cultural Access Fund and is expected to grow to $5.325 million annually.

The money would be used to cancel out proposed cuts from the Division of the Arts, Delaware State Historic Preservation Office, Delaware State Museums, Division of Libraries and the Delaware Public Archives.

Such a plan must still be introduced as legislation and passed in both chambers of the General Assembly.

Although the committee’s work centered on cutting, some budget items were — at least temporarily — rescued from the cutting block.

The group, working with suggestions from Gov. Jack A. Markell, voted to reinstate programs that provide vaccines to first responders, educational opportunities for pregnant teenagers, infant mortality education and $67,000 to fund private-school nurses.

"Health is the main area where [Gov. Markell] has restored items," said Ann Visalli, the state’s budget director. "There aren’t a lot of those. We’re obviously trying to cut."

State deficit for current year about $26 million

Delaware State News

DOVER — The economic downturn in the state may be bottoming out, said financial experts on Monday, but it could take years for the state to see economic activity indicative of pre-recession times.

Numbers for the fiscal year 2009 budget shortfall improved slightly at Monday’s meeting of the Delaware Economic and Financial Advisory Council, giving the state’s economic forecasters their first breath of relief since June.

The state now expects to bring in $3.162 billion for this fiscal year — up from $3.154 last month.

And although the gap in the fiscal year 2010 budget widened by nearly $30 million, it was a significantly smaller drop than seen in prior months.

"This is actually, I think, pretty good news," said Kenneth Lewis, an economics professor at University of Delaware and chairman of the council’s revenue subcommittee. "The rate of decrease is slowing down."

The revenue subcommittee predicted the state will bring in $2.909 billion in fiscal year 2010 — down from the $2.937 billion estimate in March.

The biggest cause of the decrease was the drop in personal income tax brought in to the state. As Delawareans continue to lose their jobs and lose money on stocks, the money the state brings in through taxes decreases.

Despite the relatively good news, the state still faces a tremendous budget shortfall — $26.5 million for this fiscal year and $778 million for the next one.

In addition, it is expected to take the state years to get back to where it was before the recession.

John E. Stapleford, University of Delaware economics professor, said Delawareans should not expect to see pre-recession economic conditions until the fourth quarter of 2012.

"It looks as though the economy is stabilizing, but it’s hard to say that’s good news," said Joshua W. Martin III, chairman of DEFAC.

Adding truth to that statement are the state’s unemployment numbers, which continue to rise, even though the economic situation appears to stabilize on paper.

Unemployment in March was 7.7 percent. In February the number was at 7.3 percent.

Ironically, though, Delaware’s rising unemployment numbers may help the state bring in more money through other means.

After three consecutive months of a state’s unemployment reaching above 6.7 percent, the state qualifies for Tier 3 status, which means more federal stimulus funds for Medicaid.

On Friday, when the state’s Department of Labor released the unemployment numbers for March, Delaware officially reached its third month above 6.7 percent.

The new status could mean about $4 million more for Medicaid, said Ann S. Visalli, the state’s budget director.

Revenue subcommittee meeting today

Delaware State News

DOVER — Delawareans may find out more today on a topic that has been on the minds of most for quite some time — the budget.

The Delaware Economic and Financial Advisory Council’s revenue subcommittee will meet today to estimate the amount of revenue the state will generate for the rest of this fiscal year and the next one. An official economic forecast from the full council is expected Monday.

The meetings today and Monday are significant to state lawmakers as they try to draft a budget for fiscal year 2010 and to find a way to balance the budget for this fiscal year, which ends June 30.

According to the last DEFAC forecast in March, the state is still $30 million short for this fiscal year and is facing a $750 million budget shortfall for fiscal year 2010.

These numbers have continually gotten worse over the past five meetings of the council, even prompting it to call a special meeting in November.

Due to the tremendous size of the revenue shortfalls, Gov. Jack A. Markell has recommended major steps to address the situation, such as instituting a sports-lottery system and cutting the pay of state employees by 8 percent.

If the shortfall were to worsen today, the actions necessary to close the gap would become even more painful.

If it grows worse, Ann S. Visalli, the state’s budget director, said additional cuts would likely have to be made. The state would also look at management controls, she said.

"Regardless of what happens at the April DEFAC meeting, our first priority is getting through ’09," she said.

Because the Delaware Constitution requires a balanced budget, the state cannot end the fiscal year in the red. As June 30 approaches, finding the $30 million becomes even more important, she said.

She said she hoped legislators would pass the sports-betting legislation, since a change in the split of the video-lottery revenue would bring in $7.5 million for this fiscal year to help with the problem.

If today’s meeting offers up a surprise and those on the council predict the shortfall to decrease, the budget office’s action would not be much different, said Ms. Visalli.

"It would be very premature to take anything off the table in terms of cuts based on anything that happens in April," she said.

The council will still meet in May and June, she said.

"We need to be prepared for any downturns," said Ms. Visalli.

And others agreed.

"Either way, it’s a very, very challenging year," said Rep. E. Bradford "Brad" Bennett, D-Dover. "The governor proposed his budget and it’s up to us (legislators) at this point in time to modify it based on the numbers, whether they go up or down."