In today’s News Journal, Rep. Greg Lavelle, the minority leader of the State House, has the following op-ed. It is sobering stuff. Too bad that the “leadership” in Dover won’t actually fix a problem when they have the chance…
As in most states, the growth of Delaware’s health care and pension costs has been on a trend that is not sustainable.
From 2010 to 2012, these expenses have increased from $493.1 million to $610.9 million. This represents a two-year growth of almost 24 percent and equals an annual compounded growth rate of 11.3 percent. Recent projections from the Delaware Economic and Financial Advisory Council have state tax receipts growing just 2.4 percent in fiscal 2012.
Given these facts, Gov. Jack Markell was right to try to tackle this issue. After being blocked a time or two, he was able to establish a working group to hammer out a solution. This six-week effort was undertaken in the shadow of all the tumult in Wisconsin and other states that were also working to rein in apparently out-of-control costs and related issues.
The result of this effort is House Bill 81, which recently passed the House. The bill is projected to save $131 million over five years for an annual savings of $26.2 million. There are also 15-year projected savings figures that approximate this annual rate. Of course, the only thing more uncertain than a five-year government projection is a 15-year projection.
For some, this represented a champagne moment. While nobody bolted to Ocean City, Md., to avoid votes or otherwise shut down Legislative Hall, I’d like to suggest that it is premature to open the bubbly and declare this issue solved.
The annual savings of H.B. 81 represent just 4.2 percent of the total fiscal 2012 expenditure of $610.9 million. This still leaves a growth rate for health care and pension expenses of 7.1 percent and an annual funding “deficit” of 4.6 percent after taking into account tax-receipt growth of 2.4 percent. In dollar terms, this is $25 million a year in unfunded growth and represents a five-year compounded growth of 25.2 percent.
It has been pointed out that the savings from H.B. 81 are primarily coming from future state employees with minimal changes for existing employees. The existing and future benefit packages far exceed anything offered in the private sector, where employees generally contribute 30 percent or more to their health care costs and no longer have defined-benefit pension plans.
These are just the facts. The cost curve has not been bent but has been deflected. It is a step in the right direction but clearly not the last step that needs to be taken.
I understand that sometimes you take what you can get and appreciate the “yes” votes of a vast majority of my colleagues. I voted “no,” not to fault the effort, but to point out that if nothing else can be done and this issue is now politically off-limits, the deficit growth will have to be funded by cutting expenses elsewhere in the budget, raising taxes or growing the economy.
Current DEFAC projections for true indicators of economic growth in Delaware, personal income and gross-receipts taxes are not looking up. Of course, if and when they do increase, there will be other areas of the budget looking for that money as well.
Given all this, I’d suggest keeping the champagne on ice a while longer.
State Rep. Greg Lavelle, R-Sharpley, is the House minority leader from the 11th District.