By J.L. MILLER, The News Journal
A struggling economy and a downturn in corporate and personal income tax collections have shot a potential $126 million hole in Delaware's current operating budget -- a hole that must be filled by the end of the fiscal year on June 30.
Revenue for the coming year is expected to fall another $200 million short of the last estimate, issued in December, and if that number holds true it could force the General Assembly to raise taxes or cut the already bare-bones fiscal year 2009 proposed budget.
The Delaware Economic and Financial Advisory Council, which issues the revenue estimates that are used to prepare the state budget, released March estimates Monday afternoon in a meeting at Buena Vista, south of New Castle.
"I think from all the years of DEFAC, this might be one of the most important," council Chairman Robert Byrd told the panel.
The largest declines are projected for personal income tax collections, the bank franchise tax and the real-estate transfer tax.
But revenues are expected to decline almost across the board. Even revenue from cigarette taxes is declining, thanks to an increase in that tax a year ago that depressed sales.
"That's a third of a billion dollars we've just taken out of our forecast," University of Delaware professor and board member Ken Lewis said.
The only bright spots are revenues from the lottery and the gross receipts tax, both of which are holding relatively steady.
State budget officials and legislators have been warning for weeks that the revenue picture has been worsening since the December estimates were issued. It is those estimates that Gov. Ruth Ann Minner used to build her $3.4 billion proposed budget for fiscal 2009.
Anticipating a shortfall in revenue, Minner last month ordered cost-cutting to reduce current-year expenditures by $50 million to $75 million. Those measures included an "intensive hiring review" before positions are filled and reviewing purchase orders of more than $2,500.
But the new estimates of a $126 million shortfall mean additional cuts will be needed -- and they could be announced as soon as today.
"Additional financial controls are in order," said Jennifer "JJ" Davis, director of the state Office of Management and Budget.
Davis would not say what those controls might be, only to say, "All options are on the table."
Hiring freeze possible
One of those options could be a hiring freeze -- a weapon Minner employed in September 2002 when estimated revenue began to decline. She eased it 14 months later when revenues rose, and lifted it entirely in July 2004.
Clamping down on spending in September paid dividends in 2002, because the savings had nine months to accrue before the end of that budget year.
But clamping down on spending in March is a different matter: There are only 105 days left in the current budget year.
Cutting the proposed budget for the coming fiscal year also places legislators in a difficult position, because that proposal already limits growth to less than 4 percent and focuses on core state programs.
Yet raising taxes in an election year is politically difficult, leaving spending cuts as the likely alternative.
"You're going to have to have significant cuts -- the budget, the grants-in-aid," House Minority Leader Robert F. Gilligan, D-Sherwood Park, said after Monday's meeting.
"These cuts are going to have a significant impact on the people of Delaware," he said.
Groups seeking additional money for causes ranging from early-childhood education to bus transportation programs for the disabled and elderly already have been told by the budget-writing Joint Finance Committee not to expect any help unless revenues rebounded.
"It's going to be challenging," said Sen. Nancy Cook, D-Kenton, the JFC's co-chair.
In addition, there is no guarantee that revenues will not decline beyond what DEFAC predicted Monday.
Economists expect a rebound when tax rebates from the federal economic stimulus package reach taxpayers' hands this spring, but the impact could be short-lived.
"My biggest concern is, we still have April, May and June," Cook said. DEFAC will meet in each of those months, and the June estimates will be used to draft a final budget for fiscal 2009.
Delaware does have a $182 million "rainy day fund" that is reserved for true emergencies. But that fund has never before been tapped, and a vote to do so is seen as highly unlikely.
The Legislature normally holds spending to 98 percent of revenue, but it could vote to spend more than that to close the gap. The last time that happened was in the early 1990s.
