Warning: There Is No Budget Surplus

With the Governor’s proposed budget scheduled to be unveiled in less than a week and in light of recent Delaware Economic and Financial Advisory Council (DEFAC) reports purportedly showing an uptick in revenues it is incumbent upon me, as an elected official, to alert the taxpaying public to the reality and complexity of Delaware’s economic situation.

While increased revenue projections might appear to be welcome news a number of factors should be considered in the final analysis. The specifics of the revenue gains and revenue shortfalls should be taken in the context of sustainability and specificity with close scrutiny applied to future trends. The December DEFAC report is a case in point. While projecting more revenue ($23.9M) available in FY 2019, it also notes a slight decrease in estimated revenue for FY 2018. The DEFAC meeting highlights for December provided to me by the Controller General points out several trends that could and should be viewed as troubling in the final analysis.

Out of sixteen major revenue categories such as Personal Income Taxes, Corporate Income Taxes, Lottery, Gross Receipts and others, only two estimates projected revenue gains over prior estimates. These two were the Lottery and the Abandoned Property monies (by all accounts the least stable and sustainable sources of revenue). Seven of the other fourteen sources showed neutral growth while the remaining seven projected significant shortfalls for FY 2018 and FY 2019.

I will highlight two of the major lost revenue sources that could seriously disrupt Delaware’s future economic circumstances. The Alcoholic Beverage Tax revenue estimate was $3.2M less for FY 2018 and $3.3M less for FY 2019 confirming a trend that happened the last time we raised this tax nearly two decades ago. I and some of my colleagues who voted against the current increase warned that previous Alcohol Excise Tax increases, damaging Delaware’s competitive pricing advantage, could and would result in less revenue.

But a more serious threat to our economic health and stability has become obvious in the DEFAC report analysis that shows $13M less revenue from Corporate Income Tax in FY 2018. The Controller General’s synopsis states that “Corporate Income Tax estimates were adjusted lower based on higher than anticipated refunds during the month of October. The effects of businesses claiming tax credits under HB 235 (The Delaware Competes Act) from the 148th General Assembly are thought to have been stronger than expected and contributed to the lowering of the December forecast.”

This should sound a clear alarm regarding Delaware’s corporate tax structural changes since the $13M is in addition to the original fiscal note estimate of HB 235 which DEFAC projected at $17.6M for FY 2018. In fact the Delaware Competes Act was passed with estimated revenue losses of $8.2M in FY 2017, $17.6 in FY 2018 and $22.9M in FY 2019 totaling $48.7M in corporate tax cuts and lost revenue. Now we can add another $13M to that giveaway at taxpayer expense. I and Representative Kim Williams were the only legislators to question the bill and vote against it and it seems our concerns are justified. I’ve written extensively about these failed economic policies of “corporate welfare.”

A few of the most pertinent excerpts follow.

On March 20, 2016, I wrote:

Within a total of 14 calendar days, SB 200, the “Commitment to Innovation Act,” was rushed through committees, voted on by both chambers (under a suspension of House rules), and signed by the Governor. This latest corporate giveaway will be funded by you the taxpayer and is the latest display of an arrogant disregard for you and your family’s dire economic circumstances. I am forced to post on this matter and the recently signed “Delaware Competes Act” to make you aware of the willingness of this Administration and legislature to forfeit over $60 million of revenue in a futile attempt to bribe multi-billion corporations to not leave Delaware when, in fact, they have already done so. Delaware’s working people and local business community do not deserve to be shortchanged by such economically irresponsible flights of fancy.

On January 11, 2017, I wrote:

The 149th session of the Delaware General Assembly began yesterday on January 10, 2017. It was in the first week of session last year that the House leadership sponsored and pushed through HB 235, the “Delaware Competes Act,” using an expedited procedure and rules suspensions to have the bill passed and signed before the public could comment on the proposal or even learn about it. That bill, along with SB 200 (introduced and signed within 14 days under a similarly expedited procedure), will cost Delaware taxpayers over $60 million a year (rising in subsequent years) in corporate welfare giveaways.

No responsible individual would spend more than they earn or have and no government should spend or giveaway taxpayer money that it does not have.

John Kowalko
State Representative
25th District

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