Residents, businesses, lottery winners and smokers to share burden

Delaware State News

DOVER — Although there were disagreements along the way and some still are not happy with the results, state lawmakers came together to close an unprecedented budget deficit last week through a series of cuts, taxes and the use of federal stimulus money.

Legislators said that none of the decisions came easy because they knew that each of the choices they made would affect Delawareans. Particularly hard, many said, was the decision to increase a variety of taxes.

"This was a very difficult year. Nobody likes to vote for tax increases, and we had to vote for a lot of them," said Sen. Brian J. Bushweller, D-Dover. "In the end, I believe we reached an unfortunate but fair balance between raising taxes, cutting spending, cutting state employee pay and shrinking the size of government."

Although in total, legislators voted to raise seven taxes, the average citizen is not expected to bear too much of that burden. The taxes are distributed between private citizens, small business, large corporations, lottery winners and smokers.

In regards to the personal income tax — a tax that has fallen from a high of 19.8 percent for the highest bracket three decades ago to 5.95 percent as of last month — lawmakers squabbled as to how to and whether or not to change it.

After much finagling, lawmakers agreed to up the highest bracket of the personal income tax by one percentage point. This means that all individuals earning more than $60,000 a year — only 17 percent of Delawareans — will be taxed at 6.95 percent on those earnings.

The tax is expected to bring in $30 million over the course of this fiscal year.

For small-business owners, it was not the increase in the personal income tax that was of particular concern, but the decision by the General Assembly to hike the gross-receipts tax.

"That’s the one that’s most concerning to us," said A. Richard Heffron, senior vice president of government affairs for the Delaware State Chamber of Commerce. "Because it’s the small businesses that are going to get us out of this recession."

The gross-receipts tax, which is the tax on a seller of goods, was first instated in 1975 as a way to help the state overcome a budget deficit. Even years later when the state was well into the black, the tax was never repealed.

And in recent years as state revenues have decreased, government has relied upon the income generated from this tax to keep moving forward.

Gov. Jack A. Markell initially proposed a 10-percent across-the-board increase in the tax, but after an outcry from small-business owners, the proposal was decreased to 8 percent.

Some lawmakers still had trouble accepting this proposal.

"I believe we’re taxing our small businesses out of business," said Rep. Michael Ramone, R-Wilmington, during a committee meeting on the tax.

Despite the sentiments of Rep. Ramone and others, the bill was passed.

A similar argument was raised when legislators discussed upping the corporate franchise tax.

Under the legislation, the tax cap, which applies to the largest of the businesses incorporated in the state, will increase from $165,000 to $180,000.

Some legislators and business representatives said they believed the tax increase would encourage the big corporations, which are struggling like most other businesses, to relocate in other tax-friendlier states.

One tax increase that did have many supporters —— and, of course, also many opponents — was that of cigarettes.

Under the recently passed legislation, the tax on cigarettes will rise by $0.45 per pack. It is expected to bring in $16 million this fiscal year.

While smokers and tobacco-store owners were upset by the decision, many health professionals were pleased.

They said the increase in price will lead many adolescents away from smoking before they even begin.

In addition to those tax hikes, legislators also voted to increase the public utility tax, to reinstate the estate tax and to tax lottery winnings.

The public utility tax will affect mainly non-residential consumers. Cable customers may see a modest increase in their bills.

The estate tax will only apply to properties worth more than $3.5 million.

A proposed increase in the alcohol tax was not passed. It would have brought in $4.8 million. A similar proposal failed last year in the Senate.

A four-year sunset provision was tacked onto each tax increase, which helped calm the nerves of many.

But even the sunset provisions were not enough for some, who believed tax increases were unnecessary.

"We had a real opportunity to reduce the size and scope of government and we didn’t do it. We instead simply raised taxes," said Sen. Colin R.J. Bonini, R-Camden. "In this economy it was really inexcusable."

Despite the disagreements, the state did manage to cover its deficit and government functions did not cease to function on July 1, the first day of the fiscal year, which is more than some states can say.

"We don’t like taxes; we don’t like tax increases; we don’t think they will help with the economy; but we’re in a bind and we’re all in this together," said Mr. Heffron.

$10 million reduction in funding forces agencies to adjust

Delaware State News

DOVER — Social service agencies and other nonprofit agencies across Delaware are already beginning to feel the pain of greatly reduced grant-in-aid funding in the state budget for fiscal year 2010.

The new spending plan, signed into law early Wednesday by Gov. Jack A. Markell, contains an almost $10 million slash in grants funding for the new year.

Grants made by the state to nonprofits will drop from $45,232,021 in fiscal 2009 to $35,398,511 for 2010.

"After I dried my tears, it began to sink in," said Lakema Hammond, executive director of Shepherd Place, a short-term emergency shelter for the homeless on South Governors Avenue in Dover.

"I don’t know what they expect us to do. Even though our regular supporters are still coming in faithfully, donations are down because of the economy. In my opinion, I think they could have found many more ways to cut the budget — turn off the lights, turn down the (air conditioning) so you don’t have to wear a sweater in those state offices."

Annual grant-in-aid figures, accessible online on the state of Delaware Web site, show virtually across-the-board funding cuts to hundreds of nonprofits — large and small — that traditionally depend on the state’s monetary assistance for help during the year in providing services to the public.

Even volunteer fire departments and veterans’ organizations did not escape the cutting board this year.

One segment of applicants, grouped as "arts, historical, cultural/tourism" in the grant-in-aid bill, were cut well over the 30 percent, from $1,761,800 in 2009 to $963,410 for the coming year.

First Night Dover, the capital city’s annual New Year’s Eve celebration, saw its grant drop from $12,400 in 2009 to $7,000 in 2010.

Shelly Cecchett, executive director of the event, said the "show will go on" despite the funding cut.

"We have actually tried to protect ourselves for a rainy day in case something like this happened," she said Wednesday. "This will probably wipe that out now. We’re hoping the community will do what they can to continue to support the event."

Nonprofits generally depend almost entirely on contributions, grants and fund-raisers for survival.

Ms. Cecchett said First Night Dover’s modest entrance fee would stay in place.

"We’re hoping to not have to cut back the event," she said. "And the buttons will still be $9 before Christmas.

"We are definitely feeling the pinch but we want it to remain a great, affordable and wholesome event for the community on New Year’s Eve. We’re waiting to see what comes in before making any major decisions. The plan is that the show will go on."

Another Dover attraction — the Delaware Agricultural Museum on U.S. 13 — will likewise see a substantial funding cut from $48,300 down to $33,800.

"Obviously it hurts but it is not mortal," said Delaware Secretary of Agriculture Ed Kee, a former director and board president of the early Delaware farming showplace.

"The good news is, because of the (budgetary) moves we made last year, the museum ended this year with a $9,000 surplus for the first time in 10 years. The museum is solvent. There’s a team now in place that makes sure it stays in existence. I understand what the state had to do to balance the budget. We feel grateful to get what we got."

Be that as it may, it’s a sure bet there will be rounds of serious belt-tightening as nonprofits statewide gear down to survive the slumping economy.

"It’s definitely going to be harder to provide our services," Ms. Hammond concluded. "We’ve already cut back. Where the heck are we going to cut now?"

                                                         Fiscal 2009     Fiscal 2010

Session winds down with final votes on tax, fee bills

Staff writer Leah Burcat can be reached at 741-8250 or lburcat@newszap.com.