State budget baffles legislators

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by Chris Flood

Who’s going to blink first?

That’s the question as the state’s Republican and Democratic legislators enter the final hours of the 2017 legislative session.

The last scheduled day of the session is Friday, June 30, and in an effort to present a balanced budget to their legislative brethren, the Joint Finance Committee voted June 28 in favor of zeroing out money to grant-in-aid, a move saving approximately $46 million, and reducing spending on education by $37 million.

The bipartisan committee, faced with a $365 million shortfall on a $4.1 billion budget for Fiscal Year 2018, started its work weeks ago. A portion of the gap – $115 million – was closed when legislators agreed to increase the state’s corporate franchise tax. The remainder of the gap has been closed by piecemealing cuts together, but it’s the cuts to grant-in-aid that appears to be the decision no one wants to take responsibility for.

“Right now, there’s a budget we have to pay for,” said Speaker of the House Pete Schwartzkopf, D-Rehoboth, of eliminating the money for grant-in-aid. “There’s going to be a lot of people upset. The Republicans are refusing to work with us. I don’t like what’s happening.”

In the hours following the JFC cuts, Republican leaders Senate Minority Whip Greg Lavelle, R-Sharpley, and Senate Minority Leader Gary Simpson, R-Milford, strongly criticized the decisions in a joint statement.

“Today, the Democrats demonstrated where their values lie. They have declared that they value union campaign checks and unsustainable spending over the most needy in Delaware. The idea that they would use our nonprofits as a tool in budget negotiations is mean-spirited and pathetic. Are we to believe that every government program works? Of course not. But not one of the JFC cuts from today reduces the size of any state government program. Not one,” the statement reads.

Sheila Bravo, Delaware Alliance for Nonprofit Advancement executive director, said cutting grant-in-aid is going to affect thousands and thousands of people. She said she had hoped legislators would be able to find some common ground on revenue solutions.

These cuts affect a lot of community services, she said, listing off senior centers, paramedics and local volunteer fire departments.

“In some cases, these nonprofits are not going to be able to sustain themselves,” Bravo said. “There’s going to be some really big decisions made in the next couple of days.”

Three of those revenue solutions could be proposed increases in the state’s personal income, alcohol and tobacco taxes.

House Majority Leader Valerie Longhurst, D-Bear, introduced a bill June 15 increasing existing personal income tax brackets by varying amounts, increasing the standard deduction and eliminating itemized deductions. The bill would also create a new taxing bracket for individuals earning more than $150,000 of
taxable income each year.

House Bill 240, which would take effect on Jan. 1, 2018, is estimated to generate $68.1 million in new revenue for fiscal 2018 and $211.5 million for fiscal 2019.
Under HB 240, existing tax brackets would increase by amounts varying between 0.15 percent and 0.4 percent.

The current upper bracket, taxable income above $60,000, would increase from 6.6 percent to 6.8 percent. The new bracket, for income greater than $150,000, would be set at 6.95 percent.

The standard deduction would increase from $3,250 to $5,000 for single and married taxpayers filing separately and from $6,500 to $10,000 for taxpayers filing joint returns.

The bill would also raise the eligibility age for the $12,500 exclusion from income of pensions and other retirement income from 60 to 65 during a five-year period.
Tobacco, alcohol hikes Schwartzkopf introduced two bills, House Bills 241 and 242, June 15 that would increase tobacco and alcohol taxes.

House Bill 241 increases the state’s alcoholic beverage tax rates. The rate for beer increases by 2 cents per 12-ounce can. The rate for wine increases by approximately 3 cents per 5-ounce serving. The rate for spirits containing more than 25 percent alcohol by volume increases by 15 percent per 750 ml bottle.
House Bill 242, introduced by Schwartzkopf June 15, would increase the tax on tobacco products and defines vapor products as a tobacco product. Specifically, this bill increases the tax on cigarettes from $1.60 to $2.10 per 20-cigarette pack; increases the tax on all tobacco products other than vapor products, moist snuff, and cigarettes from 15 percent of the wholesale price to 30 percent of the wholesale price; imposes a tax of 5 cents per fluid millimeter of vapor product; and increases the tax on moist snuff from 54 cents per ounce to 92 cents
per ounce.

As proposed, the two bills would take effect in September and raise $18.8 million for the next fiscal year.

All three bills were voted out of the House Revenue and Finance Committee June 21, but no further action has been taken.

Schwartzkopf said at this point, the sticking point for Republicans is prevailing wage reform. The problem, he said, is there aren’t the Democratic votes to pass such reform.

During a June 13 press conference, Republican leaders introduced a series of state spending reforms, including a proposal that calls for allowing school districts and local governments to forgo state-mandated prevailing wage rates, even when state money is part of the funding mix.

Three bills, Senate Bill 116 and House Bills 221 and 244, would create 3-year exemptions from prevailing wage requirements for public school construction, county and municipal government contracts, and Delaware Department of Transportation road construction. All three bills also call for cost-study comparison reports for the Controller General’s Office.

“We’ve agreed to everything on their list of demands except prevailing wage,” said Schwartzkopf. “[Republicans are] holding up a $4 billion budget over a philosophy on prevailing wage.”

Sen. Ernie Lopez, R-Lewes, said he’s not going to participate in name-calling, but he said prevailing wage is a big issue. He said he and his fellow Republicans are calling for reform to an antiquated system to make it more fair across the board.
“It is a sticking point, but I feel confident we can get this done and I’m looking forward to finding common ground,” he said. “This is a difficult moment, but I believe in the process.”