Delaware Fails to Reform its Budget....Yet Again

Yesterday, Gov. Jack Markell of Delaware signed the budget for fiscal year 2011. While states across the country are tightening their wallets and making cuts, Delaware lawmakers, excited by an increase in tax revenue from the past year that is expected to continue, rushed to push money in every direction because, after all, it is an election year. Instead of being concerned with the long-term economic security of the state, the Joint Finance Committee struck down the budget cuts proposed by the Governor and fell back into old habits. It's more of the same in the First State where increases in public sector health benefits and pension plans, including free health insurance for the spouses of government employees, are digging the financial hole deeper and deeper.  In the end the budget they passed for 2011 is 6.5% larger than the 2010 budget.

But throwing money around will not solve the economic problems in Delaware. Currently, the ALEC-LAFFER State Economic Competitiveness Index ranks Delaware 47th in the nation for their top marginal corporate income tax rate at 9.98% and 42nd for their top marginal personal income tax rate at 8.20%. These exorbitant rates are to blame for their low personal income per capita cumulative growth; from 1998-2008 personal incomes only grew 39.9%, the tenth lowest in the nation. Additionally, the punitive Gross Receipts Tax levied on producers makes Delaware an unattractive option for businesses looking to relocate.

Delaware missed a great opportunity to make significant reforms that would have saved the state $200 million over the next five years. The state continues to pay large sums of money to keep state troopers instead of resource officers in schools and to put nurses in private schools. Additionally, making non-profits compete for their grants and requiring districts to share the costs of the bus routes they plan would have saved taxpayers even more. All in all, the short-sightedness of Delaware’s budget increase will be on display next year when they are in the same position with the same problems.