Budget talks reach impasse


DOVER — Republican lawmakers are digging in their heels in budget talks, pushing back against a Democratic majority that favors tax increases and opposes GOP calls for larger cuts in spending.

Republican leaders of the Senate and House on Tuesday announced a series of steps they say will provide “bold and structural reform” in the long term for Delaware’s budget and economy.

Their proposals would enact greater limits on spending, cut portions of prevailing wage and examine Medicaid reform and school district consolidation.

While most of the specific discussion points haven’t been made public previously, they echo common Republican goals: reducing spending and improving government efficiency.

Republicans and Democrats have been meeting for months in an effort to come to an agreement on balancing the budget. But the two sides appear to have reached an impasse for now.

The fiscal year ends June 30 and lawmakers are still facing about a $200 million gap between projected spending and revenue.

Republicans have balked at tax hikes; Democrats, who control both chambers, are resisting large-scale cuts.

Proposals from Gov. John Carney, a Democrat, to raise income taxes by 0.2 to 0.4 percent, eliminate itemized deductions (and increase the standard deduction) and hike the tobacco tax have stalled, with Republicans insisting Democrats make changes to state spending first.

The Republicans may be in the minority, but members still have power: Because tax increases require a three-fifths supermajority, a number that Democrats lack in the Senate, a GOP buy-in is necessary to hike taxes.

“The current proposal from the other side doesn’t have any systemic change. It gets through the 2018 election, which is a great goal, but then we’re going to be back here in January 2019 in the same situation — so we need to do this fiscal framework,” Senate Minority Whip Greg Lavelle, R-Sharpley, said.

Republicans said in a statement that Democrats “want to dictate” and “are not committed to making changes for the betterment of our state.”

House Speaker Peter Schwartzkopf, D-Rehoboth Beach, in reply, blasted Republicans for “leverag(ing) our state budget for an ideological viewpoint.”

“Why do they think they should get something in return for their vote for doing what is in the best interest of our state, the people of our state and to maintain our services?” he said. “We were talking a little while ago and I honestly feel like they’re trying to make us into a third world-type state, where we don’t provide services for our people, where we don’t provide a good education for our kids.”

Republican lawmakers last week made public their proposal to temporarily do away with prevailing wage, which governs what laborers on state-funded construction projects are paid, for counties, municipalities and school districts.

The rest of the items announced Tuesday have already been discussed with Democratic leadership but not formally released to the public.

The Joint Finance Committee cut about $80 million last month before the Democratic leadership decided to cancel JFC meeting early, with Rep. Schwartzkopf saying he did not want to make cuts that might later be undone if a deal to raise revenue is reached.

While Republicans say lawmakers are not even halfway to the needed cuts, Democrats say they have another $95 million in “soft cuts” — areas that lawmakers did not fund but did not have to vote on.

“I’ve never heard that suggested … so if this was a budget gimmick they’re sitting on the whole time, I think they should have been a little more honest,” Sen. Lavelle said when asked about that $95 million. “And if they’re into soft cuts, maybe we ought to figure out what a soft tax increase is.”

Top lawmakers were scheduled to meet Tuesday evening to continue budget discussions, even though the two sides took shots at one another Tuesday.

Gov. Carney said in a statement he hopes lawmakers pass a budget based on cuts and tax increases.

“I’ve been saying for months that we need a long-term budget solution that relies equally on spending cuts and new revenue,” he said. “I agree with legislative leaders of both parties who believe we should address long-term spending issues in areas such as health care and education.

“And I’m ready to move forward — assuming that legislators are just as serious about voting on a responsible, long-term plan to raise revenue. Over the past several months, I’ve talked to Delawareans across our state about our budget challenges, and they understand the need for a balanced solution.”

But the two sides starkly disagree over spending and revenue.

“There is much reform that needs to be done in our state government. In fact, it is urgent,” House Minority Whip Deborah Hudson, R-Hockessin, said.

Republicans want to change areas like prevailing wage and alter the way the state government budgets annually.

A “new fiscal framework” would provide greater stability by controlling spending based on elements like population and economic growth. Delaware currently sets aside 2 percent of all the money it brings in in case revenue falls short of the predicted levels. Republicans want to build on that concept, keeping more money in reserve.

“So you have boom years and bust years, and in the boom years you spend every dime you can get and in the bust years we tax to make up the difference,” Sen. Lavelle said. “And so, the theory is that you figure out some number — and this is not going to be figured out between now and June 30 — and it is an average of these things.

“It could be (the Consumer Price Index), population growth, any number of things and it’s a number. And so, let’s say it’s 2.2 percent, whatever it happens to be, and in the year you have a huge revenue increase for whatever reason, hopefully from economic activity, and that your revenue is actually up 3.8 percent, you would take the 1.6 and put it into a smoothing fund or something like that. So ideally when you’re down below that 2.2 you could bring some money over and make up the difference.”

That idea was mentioned in a bipartisan 2015 report on state revenue, something Republicans noted Tuesday.

The Republicans also want prevailing wage reform, arguing it would free up money for more construction projects because the prevailing wage is often set much higher than what a worker would earn otherwise. The average hourly wage for an electrician, for instance, is $27.24, according to the U.S. Bureau of Labor Statistics.

But, in Delaware, under prevailing wage electricians on state-funded construction jobs are paid $66.85.

Other areas Republicans are targeting include school district consolidation and Medicaid reform.

The Republican leadership is seeking to study merging some of the state’s 19 school districts — an idea that has long been talked about but seen little action. Proponents of the plan say it could reduce costs, but others counter it contains hidden costs in the form of “leveling up” teacher pay so educators in what are now different districts would make the same salary in a new consolidated district.

Medicaid, at $767 million in the current fiscal year, makes up almost 19 percent of the state budget. The Republicans’ plans include creating a committee to study fraud, waste and abuse.

Lawmakers still have several weeks to pass a budget, and things could start falling into place once an updated revenue forecast is issued Monday.

But if they don’t, Rep. Schwartzkopf cautioned, the budget will be based mostly off cuts.

“Once we start on it, I can tell you nobody in this building will be answering their phone because they won’t want to hear what’s coming,” he said.

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