Carney’s budget would raise some taxes, increase state employee health care costs

 

Gov. John Carney before he announces the budget proposal at the Delaware Archives in Dover on Thursday. (Delaware State News/Marc Clery)

DOVER — Gov. John Carney’s proposed budget includes slightly higher income taxes, hikes in property taxes and cuts in money going to school districts.

The $4.096 billion budget, the first recommended by Gov. Carney, marks a .29 percent increase over the current fiscal year.

While it will not be formally introduced as a bill, it will be a reference point for lawmakers as they navigate a $386 million gap between projected revenue and spending over the next three months.

Former Gov. Jack Markell’s budget suggestion, released in January days before he left office, totaled $4.128 billion, although it included more drastic changes. Proposals to eliminate a senior property tax subsidy, lock state employees into a Health Savings Account and shift millions in costs to the counties and school districts are either mostly or completely absent from Gov. Carney’s budget, which tackles the gap with an even mix of cuts and taxes.

“This is an exercise, frankly, in tough decisions,” the governor said.

While the budget would continue growing under the governor’s plan, the change would be less than in most of the final budgets under Gov. Markell’s: The budget increased by at least 2 percent per year in each of the past seven years.

The growth this year is due to what officials describe as necessary cost drivers, such as escalations in Medicaid cost and school enrollment.

Gov. Carney’s plan, true to promises of “shared sacrifice,” would impact almost every Delawarean.

“People are willing to pay a little bit more if they feel like the government and those of us who are running it on their behalf are doing so with a commitment to using taxpayer dollars as efficiently and as effectively as we possibly can,” the governor said in a news conference Thursday.

Under his proposal, each tax bracket would increase by .2 to .4 percent and itemized deductions would be eliminated. As a counterbalance, the standard deduction would be increased from $3,250 to $5,000.

Of the six current tax brackets, all but the highest — $60,000 and above — have been the same since 2000.

The franchise tax, a fee paid by companies incorporated in the state, would see its ceiling lifted from $180,000 to $250,000 for the largest companies. Another level of $200,000 would be added and lower ranges would be adjusted as well.

The cigarette tax would jump from $1.60 to $2.60, and other tobacco products, such as snuff and electronic cigarettes, would also have higher taxes. If increased, Delaware’s cigarette tax would be tied with Pennsylvania as the 10th highest in the country.

“So this proposal is not just from a revenue perspective but in the long run it helps to reduce long-term health care costs by increasing the disincentive to smoking,” Finance Secretary Rick Geisenberger said.

Those three tax hikes would bring in another $192.8 million — half the budget gap.

The income tax change doesn’t go far enough for some: Rep. Paul Baumbach, D-Newark, questioned Gov. Carney Thursday as to why he did not call for a new top bracket. The current one, Rep. Baumbach said, is “woefully lower than our neighbors.”

Cuts and the next steps

While the governor’s budget includes a number of minor cuts, it also would entirely eliminate funding for agricultural preservation, cut school funding by $37 million and raise costs for state employee health care.

The reduction in school funding would allow districts to raise property taxes without referendums, costing the average Delaware homeowner $38 per year.

The senior property tax subsidy, which gives Delawareans over age 65 a break of either $500 or 50 percent on their property taxes, would be reduced by $100 or 20 percent. The eligibility age for several other senior credits would be lifted from 60 to 65.

Grant-in-aid funding, which goes to nonprofits like senior centers, fire companies and children’s organizations, would be slashed by about 11 percent, from $45.9 million to $40.7 million.

The governor’s budget does not specify where the cuts would come from, instead leaving the decision up to the Joint Finance Committee.

Asked what the most difficult cuts were, Gov. Carney said “the ones that affect investments in the future, in education and in the vulnerable population” were the toughest for him to swallow.

His plan calls for saving $6.5 million through changes to state employee health plans, such as increased premiums, although the specifics will be worked out by the State Employee Benefits Committee.

“Health care cost inflation in my view is the biggest challenge facing the country,” the governor said.

Delaware would cut 200 vacant positions under the recommendations. The state instituted a hiring freeze on Monday.

Whatever the final budget lawmakers produce in June looks like, it is certain to add more resources for members of the Department of Correction. A Feb. 1 inmate uprising at the James T. Vaughn Correctional Center killed one correctional officer, and the General Assembly and governor have stressed the need for more officers and support.

Gov. Carney’s recommendations call for $4.7 million to increase hazard pay for correctional officers, effectively raising salaries from $35,179 to about $37,000. Another $2.3 million would be used to hire 75 new officers for Vaughn and Baylor Women’s Correctional Institution, while $1.3 million would go to new equipment and training.

However, Gov. Carney admitted those proposed changes are only a starting point.

“I think it’s fair to say that there’s more that will have to be done,” he said.

Senate Republicans released a statement Thursday in which they congratulated the governor on his proposal and hinted at possible displeasure with aspects of it.

“The governor and his team have put forth a good-faith effort to create this proposal,” Sen. Dave Lawson, R-Marydel, said. “I look forward to spending the next few months evaluating this framework and exploring alternatives that create better value for our taxpayers.”

The administration has not yet released a capital budget proposal and will not do so for at least a month. Gov. Markell’s capital spending plan totaled $555.3 million.

Significant changes proposed by Gov. Markell over the past two years were largely shot down by lawmakers, leading to the then governor issuing criticism — albeit rather muted — of lawmakers in June

“I think to the extent that we don’t take action on things like the health care, on things like the senior property tax, I think one could argue that the can is being kicked down the road,” Gov. Markell said.

Gov. Carney expressed confidence the state will see action on many of the things included in his budget, even though they may be unpopular.

The changes are intended to help address a “structural” problem, where many revenues do not grow with the economy, even as costs rise.

Though this budget contains similarities to Gov. Markell’s — namely the three tax categories — Gov. Carney said he did not set out to emulate his predecessor’s suggestions. Gov. Markell’s budget did, however, come frequently in conversations with Delawareans over the past two months, Gov. Carney said.

For county officials, Gov. Carney’s budget is much more welcome than Gov. Markell’s was.

“The former governor’s projected budget would have had an impact on the county governments of about $2.1 or $2.5 million, and that does not appear to be Gov. Carney’s message,” Levy Court Commissioner P. Brooks Banta said. “As far as county government goes, I think that we feel good about his sincerity and willingness to work with people throughout Delaware. It’s extremely important to note that on his proposed budget, the county governments aren’t directly impacted because that was one of the main concerns that all of us had.”

However, Rep. Sean Lynn, D-Dover, believes proposed cuts to nonprofits like the Modern Maturity Center and Community Legal Aid Society would seriously harm the county.

“As a Kent County legislator, I cannot support” this portion, he said.

Rep. Melanie George Smith, D-Bear, the co-chair of the Joint Finance Committee, said the budget is a “responsible” one that contains many “difficult decisions.”

The Joint Finance Committee will meet Tuesday and hold hearings at the end of April in an abbreviated version of February’s meetings with state agencies.

Budget reductions

Gov. John Carney proposed the following cuts in his Fiscal Year 2018 operating budget:

•$25 million to reduce funding for Open Space, Farmland and the Energy Efficiency Fund until resources are available.

•$5 million to reduce the Senior Property Tax Credit by $100.

•$3.3 million in higher education reductions.

•$2.6 million to reduce Medicaid dental reimbursements by 14 percent.

•$1.2 million in reductions for fleet services and energy expenditures.

•$594,300 for a reduction to pass-through programs.

•$460,800 to reduce funding for Delaware Art, and Library Standards.

•$125,000 to close the Polly Drummond Hill Yard Waste site.

•$171,000 to eliminate the Board of Parole.

Reach staff writer Matt Bittle at mbittle@newszap.com

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