State panel lowers official state revenue forecast again

NEW CASTLE — Delaware’s official government revenue forecast went from bad to worse on Monday, putting more pressure on lawmakers and the administration officials developing a spending plan for next year.

The panel that sets the state’s official financial forecast lowered its revenue projection for the current year by $26 million compared to its September estimate. The Delaware Economic and Financial Advisory Council also lowered its revenue forecast for fiscal year 2018, which starts July 1, by $8.3 million.

The changes reflect a significant decrease in corporate income tax revenue projections, lower expectations for corporate franchise taxes and higher abandoned property refunds. A sizable increase in abandoned property collections was not enough to offset the declines.

“The state of Delaware is really at a crossroads right now,” state finance secretary Tom Cook told other council members, stressing that the state needs to restructure its revenue portfolio to make it less dependent on volatile sources.

The net result of Monday’s changes is that lawmakers currently have $33.7 million less in spending authority for fiscal 2018 than they had under September’s estimate. Just to match this year’s budget, with no growth, they would need to find another $201 million in revenue.

Democratic Gov. Jack Markell will submit his final recommended budget to lawmakers before leaving office next month.

Outgoing budget director Brian Maxwell noted that cost drivers for next year’s budget, such as Medicaid obligations, debt service and school enrollment increases, total about $150 million, leaving the actual shortfall, compared to the current budget, at around $350 million.

“We’re looking across all state government as to what reductions we feel comfortable making,” Maxwell said. “It will be a balanced approach as far as expenditure reductions and also some revenue proposals.”

Mike Jackson, tapped by Gov.-elect John Carney as the state’s new budget director, said Monday’s revisions were not unexpected.

Carney has called for a complete “budget reset” that includes closely scrutinizing both spending and revenue. He has not ruled out tax or fee increases.

Carney has expressed particular concern about Delaware’s reliance on abandoned property, which is the third-largest source of general fund revenue for Delaware and is expected to total more than half a billion dollars in the current fiscal year.

Abandoned property can include unclaimed stocks and bonds, insurance policies, uncashed checks, unclaimed wages, dividends, even unredeemed rebates and gift certificates.

Under U.S. Supreme Court rulings, states follow a two-tier priority scheme for reporting and claiming abandoned property when the true owners can’t be found after a period of time. Under the primary priority rule, unclaimed property is reported to the state of the owner’s last known address appearing on a company’s records. But if the owner’s address is unknown or incomplete, the unclaimed property is reported to the company’s state of incorporation.

Because so many corporations are formed in Delaware, the state benefits significantly from the second-priority rule.

But Delaware’s practice of aggressively targeting abandoned property has resulted in several lawsuits.

A federal judge earlier this year blasted Delaware’s abandoned property, or escheat, practices, saying they violate due process and amount to a game of “gotcha” that “shocks the conscience.”

Markell’s administration plans to introduce legislation next month to address outstanding issues raised by the judge’s ruling, including possibly shortening the “lookback” period in which the state delves into a company’s records.

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