Delaware State News
NEW CASTLE - The Delaware Economic and Financial Advisory Council did not bring any holiday cheer Monday when members issued their latest predictions of the state's revenue picture.
The panel, whose Monday predictions will shape Gov. Ruth Ann Minner's budget proposals, left the revenue situation largely unchanged.
Decreases in key areas such as the corporate franchise tax were offset by increases in real estate and business taxes.
DEFAC's prediction for the current budget year dropped $21.6 million (.8 percent) to $2.76 billion. For fiscal 2006, which begins July 1, the numbers moved up a barely noticeable $1.1 million.
Based on Monday's predictions, Gov. Minner will have $2.96 billion to allocate when she releases her fiscal 2006 spending recommendations Jan. 27. If the predictions from DEFAC's September session had held, Gov. Minner would have had $3 billion to earmark.
"Obviously, the economic news is not great today," said Jennifer W. Davis, the Minner administration's budget director.
"We need to be cautious."
Monday's numbers also did not alter the debate over whether personal income taxes and the tax on businesses' sales, known as gross receipts, should be cut.
Estimates for the personal income tax in fiscal years 2005 and 2006 dropped by $1 million on Monday, while the predictions for the gross receipts tax grew $8.3 million.
Republicans unsuccessfully pushed for reductions in both taxes as the General Assembly's session wound down in June. They have vowed to continue their efforts when legislators reconvene next month.
"The wish list does not change," said Rep. Deborah D. Hudson, R-Wilmington, a DEFAC member and chair of the House Revenue and Taxation Committee.
"Members of the business community were very disappointed last year when they got no relief from the gross receipts tax. They are more unified this year. Their desire does not change."
Gov. Minner and legislative Democrats argued in June that the state's economy and revenue streams are not stable enough to support tax cuts.
They fear passing a tax cut now could lead to tax increases down the road if the economy falters and the state faces budget deficits.
"Nothing has changed since June," said Secretary of Finance David W. Singleton, whose agency is responsible for collecting taxes.
"We do not have a bonanza of money."
The estimates for the corporate franchise tax receipts, which is the state's second-largest money source, dropped by $14 million this year and $14.5 million for fiscal 2006. Corporations pay the tax to be based in Delaware and take advantage of the state's business laws and court system.
The corporate income tax estimates fell $19.5 million this year and $7.3 million next year, though the drop was mostly caused by a larger-than-expected refund to a big corporation.
In Septmber, DEFAC ratcheted its corporate franchise estimates down by $28.4 million.
"My biggest concern is corporate franchise," said Dr. Ken Lewis, DEFAC's chairman and a University of Delaware economist.
"Even as the market is pushing up, our taxes are still below where they should be. We just aren't seeing the corporations forming."
The estimates for the much-watched lottery revenue dropped $2.4 million this year, which Department of Finance analyst David Gregor attributed to lower-than-expected slot machine revenue. In fiscal 2006, however, the estimate increased $12.8 million because Pennsylvania has been slow to establish the slot-machine casinos it legalized this summer.
DEFAC expects the state's red-hot real estate market to continue, increasing its predictions for realty transfer tax revenue by $10 million this year and $5 million in fiscal 2006.
Besides the tax revenue, members said, the housing boom helps other sectors of the economy by creating jobs.
DEFAC predicts the state will collect $100 million this year from the tax and $95 million next year. In fiscal 2004, the state took in $88.6 million. Five years ago, the state received only $38.5 million from the tax.
"I can't imagine that the state of Delaware won't be in deep doo-doo if the construction market slows down in Sussex County," said James Horty, a Wilmington accountant and DEFAC member.
"If you drive up and down the state, there is only one thing that's hell-bent going forward. The construction industry down there is going nuts."
Post comments on this issue at newsblog.info/0407.
Staff writer Joe Rogalsky can be reached at 741-8226
or jrogalsky@newszap.com.
Reprinted with permission from newszap.com
www.newszap.com
