Delaware state budget (2008-2009)

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State Information


Delaware faced an $84 million budget gap for fiscal year 2009, as of February 2009.[1] For fiscal year 2010, the budget gap was estimated to widen to $606 million, however more recent reports placed the FY 2010 gap closer to $750 million.[1][2]
In February, shortly after entering office, Gov. Jack Markell eliminated $28.7 million from the once $109 million shortfall for current fiscal year.[3][4] Markell instructed the Office of Management and Budget to cut non-essential state travel and cut the size of the state’s fleet of sedans and sport-utility vehicles by 20 percent.[4] In an effort to eliminate the FY 2010 budget deficit, the Governor had proposed a series of budget cuts, new revenue and tax increases, including an 8 percent across the board cut in the salaries of all state employees.[5] Despite federal stimulus funds, the governor warned, "These funds will not be here for us in the near future and cannot be counted on in any way as a long-term, sustainable solution to our problem."[6]

Impact of budget woes

See also: State budget issues, 2009-2010
  • According to the Department of Labor, Delaware’s seasonally-adjusted unemployment rate in February 2009 was 7.4 percent, as compared to 6.7 percent in January 2009. There were 32,600 people unemployed in February 2009 compared to 17,600 in February 2008. The largest job gains were in education and health, plus 1,500, and government, plus 900. The largest over-the-year job losses were in professional and business services, minus 6,300; wholesale and retail trade, minus 4,800; and manufacturing, minus 4,800.[7]
  • In light of the state's budget gap the governor called for state employees to take an 8 percent pay cut and proposed raising taxes for residents who made more than $60,000 a year. The pay cut, he said, would help prevent layoffs and save about $92 million.[8]
  • Additionally, the governor required state employees to switch out three holidays for three floating days off, cut back on overtime costs and saved the state $1 million.[9]
  • The fiscal year 2010 budget proposed by former Gov. Ruth Ann Minner called for a 3 percent cut to higher education. Minner also recommended that the incoming administration close the deficit by trimming another $36.4 million from higher education. For Delaware Tech, the cuts would mean a $10 million cut to its operating budget.[10]

Budget background

See also: Delaware state budget

Delaware's fiscal year begins July 1 and ends June 30 of the following year. The state budget process begins in September when the budget office requests that each department in state government submit budget requests for the next year's budget. These requests are generally presented to the State Budget Office at public hearings held in October and November. Between November and January the governor compiles a recommended budget which is then presented to both the House and the Senate in January. According to the State Constitution, the governor must present a budget which is balanced at 98 percent of the state's projected revenues. The Delaware Financial and Economic Advisory Council is charged with making revenue projections, which are made in September, December, March, April, May and June. The governor's budget is assigned to the Joint Finance Committee. The budget bill is typically introduced and voted on during the last week in June, just before the General Assembly adjourns.[11]

Budget figures

Fiscal year General funds expenditures  % Change from previous year
2003 $2,454,100,000[12] --%
2004 $2,553,700,000[13] 4.0%[13]
2005 $2,822,300,000[14] 10.5%[14]
2006 $3,180,500,000[15] 12.7%[15]
2007 $3,389,900,000[16] 6.6%[16]
2008 $3,421,600,000[17] 0.9%[17]

Ideas about why the crisis occurred

  • According to state data, in Delaware a little more than 10.1 percent of homeowners had a mortgage in foreclosure or were at least one payment behind as of March 2009.[18]
  • The Delaware Economic and Financial Advisory Council lowered 2009's revenue estimate by $70 million compared to the panel's December 2008 prediction. The estimate for FY 2009 starting July 1 was downgraded by a total of $148 million. According to the council, the decline was led by steep declines in estimated revenue from personal income and bank franchise taxes.[19]
  • According to the state's estimates in March 2009, personal income in Delaware was expected to grow only 1.6 percent in fiscal year 2010, which began July 1, down from December 2008's estimate of 2.4 percent.[19]
  • The stimulus package was expected to have a negative impact on personal income tax revenue of $11 million through 2011, and to negatively affect corporate income tax revenue by $20 million, said state officials.[19]
  • A sharp increase in the federal excise tax on cigarettes was expected to result in $22 million less in state tax revenue as consumers bought fewer cigarettes.[19]
  • According to state officials, the collapse of the auto industry, downturns in manufacturing and the financial industry's upheaval negatively impacted Delaware's economy.[20]

Proposed actions

Governor Jack Markell

The governor had proposed an expansion of gambling that would position the state as a "Vegas-style" destination. In the first year, the sports lottery was estimated to generate $55 million in additional revenue. Additionally, with corporate and income-tax increases, program and benefit cuts, and an across-the-board payroll reduction of 8 percent, Markell told lawmakers, his plan would balance the next year's budget despite a $751 million revenue hole. Gov. Markell had also suggested raising the cigarette tax by 45 cents a pack and the alcohol tax by 50 percent. The plan also called for raising income taxes for people who made more than $60,000 by one percentage point, but only on money earned over $60,000. The governor's office estimated that would bring in $30 million in 2010 and $78 million in 2011.[20] In terms of budget cuts, Gov. Markell had suggested $331 million in budget cuts and $40 million by moving funds from capital projects to the general fund. The state, he said, would gain $14 million by moving funds from the farmland preservation fund and the open space preservation fund into the General Fund, only leaving $3 million in each fund. Additional cuts included: reduce vacant positions and casual/seasonal funding to save $3.5 million; reduce contractor service, consultants and employment services by 10 percent to save $7.5 million; reduce cost share of energy costs in schools to save $2.1 million; eliminate Saturday and holiday hours for the state archives to save $198,400.[21]

Republicans

Some Republicans were taken aback by the governor's gaming proposal and 8 percent salary cut for state employees. "Look, we realize we're facing some really tough challenges and a very deep hole. Having said that, some of these proposals worry me. For instance I think the salary cuts of state employees is too large," said the House minority leader Rep. Richard Cathcart. Rep. Daniel Short said that he was concerned that the proposal might open up too many conflicts, for example, with track owners, horsemen, people opposed to sports-betting, and people that would be opposed to the overall expansion of legalized gaming. However, other Republicans like Rep. Deborah Hudson said that they weren't entirely opposed to the gaming proposal, noting that the governor might have "struck the right note."[22]

Democrats

Although some Delaware lawmakers remained wary about the Governor's FY 2010 budget proposal, House Democrats said that they were supportive of two disputed items: 8 percent salary cuts for state employees and the introduction of sports betting in order to raise more revenue. House Majority Leader Rep. Peter Schwartzkopf said, "This was probably the worst time to cut employees’ salaries, but it’s something we had to consider at this stage." Schwartzkopf noted that although budget cuts might have been drastic, careful consideration was placed on each cut. House Speaker Rep. Robert Gilligan said, "The severity of some of the proposals illustrates just how serious our budget shortfall really is. We will work closely with the administration to pass a responsible budget that minimizes the impact to residents." However, in regards to the introduction of sports betting, Rep. John Viola said that that course of action might have been just what Delaware needed to pull the state out of its economic crisis.[23][24]

Economic stimulus package

Delaware was expected to receive $802 million, not counting the tens of millions in tax cuts, increased unemployment benefits, student grants and other initiatives, of the $787 billion dollar economic stimulus package.[25] According to White House officials, the package was expected to create approximately 59,000 jobs.[26]

According to preliminary reports Delaware was expected to receive:

  • $3.6 million for mandatory transportation enhancements[27]
  • $21.7 million for urban areas[27]
  • $11.7 million for suburban areas[27]
  • $3.2 million for rural areas[27]
  • $81.6 million for transportation[27]
  • $11 million for state and local law enforcement agencies[28]
  • $38 million to make homes and businesses more energy efficient[29]

Budget transparency

As of early 2009, Delaware had no statewide, official spending database online, despite multiple attempts to pass legislation that would require such transparency. However, in May 2009, Governor Jack Markell announced that, by July 30, 2009, citizens would be able to see the state's expenditures online in a searchable database. Said Markell, "During these historically challenging financial times, it is critical Delawareans are confident their state tax dollars are being spent as effectively and efficiently as possible."[30]

The Caesar Rodney Institute launched an independent government spending transparency website, DelawareSpends.com, which allows users to search state employee payrolls and vendor payments. Visitors to the site can also post their own data, thoughts, questions and concerns on the DelawareSpends Forum.

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the nation. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[31]
  • It was estimated that Delaware would receive at least $502 million in federal funding.[32]

Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary Exemption level
None n/a n/a n/a n/a n/a n/a n/a

Limitations and suggestions

Support for creation of the database

The National Taxpayers Union urged legislators in Delaware to support SB 184, which would have created a state spending transparency website.[33]

Public employee salary information

See also: Delaware state government salary

See also

External links

Additional reading

References

  1. 1.0 1.1 Associated Press,"DELAWARE: More cuts planned to close budget gap," February 12,2009
  2. Delaware Online,"Delaware's risky gambling bet," March 23,2009
  3. Cape Gazette,"Markell faces record budget deficit," January 30, 2009
  4. 4.0 4.1 Governor Markell,"Markell Slashes $28.7 million From Fiscal 2009 Shortfall," February 12,2009
  5. Gov. Jack Markell,"Solutions for the budget crisis," March 2009
  6. Gov. Jack Markell,"Solutions for the Budget Shortfall," March 19,2009
  7. The Delaware Business Ledger,"Delaware unemployment rate rises to 7.4 percent," March 20,2009
  8. Associated Press,"Delaware gov's budget had pay cuts, sports betting," March 19,2009
  9. Cape Gazette,"Markell to raise taxes, cut state pay," March 20,2009
  10. The News Journal,"State budget cuts take toll on higher education," February 6,2009
  11. Delaware State Education Association,"The budget process," accessed March 24,2009
  12. State of Delaware,"Financial Summary FY 2005," accessed March 24,2009
  13. 13.0 13.1 State of Delaware,"Financial Summary FY 2006," accessed March 24,2009
  14. 14.0 14.1 State of Delaware,"Financial Summary FY 2007," accessed March 24,2009
  15. 15.0 15.1 State of Delaware,"FY 2008 Recommended Budget," accessed March 24,2009
  16. 16.0 16.1 State of Delaware,"FY 2009 Recommended Budget," accessed March 24,2009
  17. 17.0 17.1 State of Delaware,"Financial Summary FY 2010," accessed March 24,2009
  18. Associated Press,"Foreclosures increase in '09," March 18, 2009
  19. 19.0 19.1 19.2 19.3 Associated Press,"Panel lowers Delaware revenue estimate by $218M," March 17,2009
  20. 20.0 20.1 The News Journal,"Markell urges drastic action on budget," March 20,2009
  21. The News Journal,"Markell's plan: 8% state pay cut, tax hikes," March 19,2009
  22. The News Journal,"House Republicans skeptical of plan," March 19,2009
  23. Delaware Online,"House Democratic Caucus discusses Markell's proposals," March 19,2009
  24. The News Journal,"Democratic legislators back Markell," March 19,2009
  25. Governor of Delaware,"Stimulus Package Would Create Jobs, Fund Critical Infrastructure Improvements ," February 18,2009
  26. American Recovery and Reinvestment Act,"Estimated job effect," accessed March 24,2009
  27. 27.0 27.1 27.2 27.3 27.4 Philadelphia Business Journal,"Feds release $1.8B in infrastructure funds for tri-state area," March 3,2009
  28. Demarva Now,"Del. police agencies expect 'vital' funds," March 11,2009
  29. Community Pub,"Feds pledge $38 million to make Delaware greener," March 24,2009
  30. State of Delaware, "Delaware State Government Would Open Checkbook to Public," May 7, 2009
  31. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  32. Wall Street Journal, "Stimulus Spending by State"
  33. National Taxpayers Union,"An Open Letter to the Delaware State Senate: Taxpayers Support Spending Transparency Web Site (SB 184)," March 7, 2008