Budget battle heats up for lawmakers

John Carney

DOVER — With 47 days left before the fiscal year ends, the General Assembly still has a way to go to erase a gap of nearly $400 million between projected revenue and spending.

Lawmakers recently took another step toward solving the problem by introducing legislation raising the corporate franchise tax, but the legislature still has hurdles to overcome before it can balance the budget.

The franchise tax measure, which has bipartisan support, is a key part of Gov. John Carney’s budget proposal, bringing in about $116 million. It would only impact companies which have $1 billion in combined revenue and assets — 1,900 corporations in all.

Gov. Carney’s proposed budget also called for raising income taxes on Delaware residents, eliminating itemized deductions, hiking the cigarette tax and slashing funding for education, agriculture preservation and state employee health care.

But the governor, a Democrat, must convince legislators both on the right and on the left to go along with his plan.

Some, such as Rep. John Kowalko, D-Newark, believe the income tax proposal is unfair — because he thinks it doesn’t go far enough. Instead of raising taxes by 0.2 to 0.4 percent on everyone, as Gov. Carney has proposed, Rep. Kowalko wants to cut tax rates by 0.05 percent for most people and create new top tax brackets on incomes of $125,000 and $250,000.

Currently, all income above $60,000 is taxed at the same rate of 6.6 percent.

Other members of the General Assembly, such as Senate Minority Whip Greg Lavelle, R-Sharpley, want to see spending reform before considering tax increases.
“Do we let Medicaid run unabated? Do we pass expenses to counties and school districts without providing them with some method of relief on some other issues? Those are reforms,” he said.

The path forward

Exactly how smoothly lawmakers predict the process of balancing the budget will be depends on who is asked.

Rep. Melanie George Smith, D-Bear, Joint Finance Committee co-chair, said the budget will be all but complete by June 2, when JFC finishes meeting for two weeks.

However, co-chair Sen. Harris McDowell, D-Wilmington, immediately contradicted that, saying he has to “hedge” the prediction.

“It’s our goal,” he said. “It is our goal, but we have to hear from the people that are looking at the possibility of new revenue. If we don’t, we’re prepared to do what has to be done, but it’s not going to be pretty.”

That would come in the form of spending cuts, which Democrats claim would drastically impact government services.

Legislative leaders agree they are not prepared to make the major decisions at this stage, but the clock is ticking.

The panel that sets the state’s revenue forecast will issue a new prediction Monday. While that forecast is unlikely to take a major swing in either direction, lawmakers are waiting for the update.

If lawmakers can come to an agreement on revenue drivers — new taxes — next week, the JFC panel would be able to make spending cuts with the expectation the full General Assembly would close the rest of the gap by passing agreed-upon bills when members reconvene in June.

At the moment, some legislators are still seeking more information on the tax hike proposals and how they would impact Delaware residents.

The leaders of each caucus began meeting with the governor and his top budget officials several months ago. The gatherings are becoming more frequent as June 30 approaches.

“It’s kind of an inquisitive set of meetings where more details are asked and then more detail has followed up after that meeting to be provided,” said House Minority Leader Daniel Short, R-Seaford.

Top lawmakers held regular meetings with former Gov. Jack Markell during his tenure, though those talks were held later in the course of the legislative session and, in the words of Rep. Short, were less “deliberate.”

Progress this year is slower than House Speaker Pete Schwartzkopf, D-Rehoboth Beach, would like. But because Democrats lack the supermajority needed to pass tax hikes without any support from the minority, they must strike a deal with the GOP.

Republicans could use that leverage to gain something they want. They did that two years ago when Democrats pushed to raise Division of Motor Vehicles fees. The minority caucuses did not budge until the final hours of the session when the two sides reached a compromise on increased DMV fees and a higher prevailing wage threshold.

In comparison, the budget was approved with greater ease last year.

Further considerations

In contrast to some of his counterparts among legislative leaders, Sen. Lavelle expressed frustration when discussing the status of the budget.

“We’re not even able to get our arms around our current problems and there’s too many legislators in this building who want to spend more money on new programs,” said the senator.

“Forget about trying to deal with the corrections and pay and health care and pensions, there’s new programs being proposed every day in this building. It’s highly irresponsible and it shows they’re not serious,” he added.

While Gov. Carney has stated the best way to fix a budget hole is to “grow out of it” by boosting the economy, Sen. Lavelle believes Democrats have failed to demonstrate a commitment to that strategy.

Gov. Carney has proposed replacing the Delaware Economic Development Office with a public-private partnership and altering the Coastal Zone Act to promote business growth but, to Sen. Lavelle’s ire, legislation to those ends has not yet been introduced.

Several lawmakers said they have ideas for cuts that are not in the governor’s recommended budget — but they declined to share what those are. Sen. Lavelle, for one, said he was “not going to negotiate here in the newspaper.”

Gov. Carney’s proposal would balance the budget, he says, with an even mix of spending cuts and taxes, something Republicans in the General Assembly are generally a little more lukewarm on than their colleagues across the aisle.

Any change to that balance would necessitate a shift on the other side to stabilize the scale.

“If you don’t want to do cuts, then you have to raise more,” Rep. Schwartzkopf said. “If you don’t want to raise money, you have to cut more.”

While the caucuses do generally differ in their ideologies, Rep. Schwartzkopf does not believe legislators are viewing the issue as a partisan one.

Nothing is off the table in discussions, lawmakers said, although some proposals — right-to-work and big tax hikes, for instance — are sure to be quickly shot down by the rank and file.

The budget will be finished by June 30, if only because the legislature is required to do so by state law.

The path just may be bumpy at times.

“We’ll keep pushing the buttons till we get to a place where everybody’s agreeable to do something, and usually time helps that,” Rep. Schwartzkopf said before adding “lack of time helps that.”

Reach staff writer Matt Bittle at mbittle@newszap.com

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