DOVER, Del. — Outgoing Gov. Jack Markell is proposing more than $212 million in tax increases to balance a proposed budget for the fiscal year starting July 1.
The two-term Democrat on Thursday also proposed $56 million in agency and program cuts in his $4.1 billion spending plan, which surely will be revised by incoming Gov. John Carney. Markell also wants to eliminate a property tax credit for senior citizens and force state employees to pay more for their health care, two moves that would save taxpayers about $50 million.
“It’s no surprise that Delaware faces a challenging financial situation, and we need a budget reset that looks at state spending and our revenue system,” Carney said in a statement. “We are very focused on this problem. Over the coming weeks and months, we will work with lawmakers of both parties on a sustainable, long-term solution to our budget challenges.”
Carney, a Democrat who will be sworn in next Tuesday, has himself not ruled out tax increases to balance next year’s budget. The legislature’s Joint Finance Committee will begin weeks of hearings on the administration’s budget proposal at the end of this month.
Markell’s proposal includes hiking corporate franchise taxes, which would net $115 million annually in additional revenue. He also wants to raise the top individual income tax rate from 6.6 percent to 6.8 percent and eliminate itemized deductions for state filers while increasing the standard deduction by 50 percent.
Changes to the real estate transfer tax, which is shared by state and local governments, would generate an estimated $55 million in additional revenue for the state while seeing the local government share decrease.
Smokers, meanwhile, would see the tax on cigarettes climb from $1.60 a pack to $2.60.
“It’s a tough budget,” Markell said earlier this week. “We have issues both on the expense side … and we have some issues on the revenue side.”
Budget-related issues are expected to drive this year’s legislative session. Based on the latest revenue projections, the current appropriation limit for fiscal 2018 is $201.1 million, or 5.1 percent, less than this year’s general fund appropriation.
That means that simply to match this year’s general fund spending, without accounting for additional obligations for Medicaid, school enrollment growth and debt service next year, lawmakers would need to find $201 million more than what is currently available. State budget officials have suggested the real shortfall, compared to the current budget, is about $350 million.
“We believe this proposal starts to address the structural issues in the state’s budget,” said acting budget director Bert Scoglietti.
Markell’s proposal is certain to face pushback from state employee labor unions and from local governments, who would shoulder a greater financial burden.
House Speaker Pete Schwartzkopf, D-Rehoboth, said local leaders in the state’s three counties are not going to be happy with Markell’s plan.
“Usually, when the counties get involved, people around here get afraid to vote sometimes,” he added.
Among other things, the state is proposing to end payments to the counties to help pay for paramedic operations, which would save $10.8 million. At the same time, Markell is proposing to decrease the local share of the 3 percent real estate tax percent from 1.5 percent to 1.25 percent, while increasing the state assessment from 1.5 percent to 2.5 percent.
Local school districts, meanwhile, could wind up paying more for school construction and student transportation.
Currently, the state pays a minimum of 60 percent, and a maximum of 80 percent, for school construction costs, excluding schools designed for special needs students. Markell is proposing that the state pay only 50 percent of such construction costs going forward.
He also has proposed reducing the state’s share of public school transportation from 90 percent to 70 percent, which would save state taxpayers $14 million.
Sen. Harris McDowell III, co-chair of the finance committee, indicated that eliminating the senior tax credit, raising income taxes and making state employees pay more for health care could be a tough for lawmakers to swallow. McDowell, D-Wilmington, promised only that the end result will be a “fair and equitable” budget.
In addition to the operating budget, Markell is proposing a capital budget for transportation and construction projects of $555 million, a 10 percent increase over this year’s capital budget.