For Immediate Release: Monday, June 13, 2011
For More Information: Joe Fulgham (302) 744-4184
Coming on the heels of legislative budget writers finishing work on a new $3.5 billion spending plan, and in anticipation of Thursday’s release of the last state revenue estimates before the new fiscal year, State House Minority Leader Greg Lavelle (R-Sharpley) is sounding a note of caution.
“We’re ratcheting up spending at a time when we should be taking stock of where we are, what might lay ahead and how to best prepare for the future,” Rep. Lavelle said.
The proposed $3,508,560,100 operating budget is an increase of 6.15 percent over the current budget, which was 6.46 percent higher than the budget preceding it.
Over the last 10 years, Delaware’s operating budget has grown by more than $1.206 billion – a 52.4 percent increase over the FY 2002 budget.
Additional spending will occur in the capital budget, often referred to as the Bond Bill because of the need to float state bonds for part of its financing. The governor has called for the creation of two new funds in the new Bond Bill: the Jobs Infrastructure Fund and the Delaware Asset Preservation Fund. Although the capital budget is still being written, the Markell administration has suggested $40 million for the former fund and another $35 million for the latter.
“This is more new spending,” Rep. Lavelle said. “Had this been included in the operating budget, at the levels we anticipate, it would have increased spending by more than eight percent. Proponents of these new funds claim they’ll only receive one-time money, but the reality is that once a fund is created it becomes a new mouth to feed at the start of each new budget cycle,” he said. “We’re going to be shoveling money into both of these funds well into the future.”
As proof of his point, Rep. Lavelle notes that the Jobs Infrastructure Fund will reportedly be established with the ability to borrow up to $20 million via the bond market.
Rep. Lavelle and other observers say there is ample evidence that Delaware may be facing a somewhat longer road to economic recovery than many people anticipate.
Some economists have warned of the possibility of a “double-dip recession,” while others note that many Americans have not yet experienced any benefit from the end of the first recession.
As the national unemployment rate topped nine percent, a recent Newsweek/Daily Beast poll found that more than four-out-of-five Americans (81 percent) say the economy is not delivering needed jobs. Fifty-two percent of those respondents indicated that “their personal economic situation makes them nervous.”
Those opinions are being driven by worsening economic news. The Citigroup Economic Surprise Indices – an objective and quantitative measure of economic news – has dropped to its lowest level in months.
One such piece of news was released last week in the form of a U.S. Department of Commerce Bureau of Economic Analysis report that revealed Delaware’s economic growth is languishing.
In the June 7th report, the growth in Delaware’s real gross domestic product (GDP) was just 1.3 percent – half the national economic growth rate of 2.6 percent.
Only one state east of the Mississippi River showed lower economic growth in 2010 than Delaware.
Neither has the state’s job picture been especially bright. “More Delawareans had jobs at the start of 2009 than they do today,” said small businessman and State House Minority Whip Gerald Hocker (R-Ocean View). “I’m plugged into the business community and we’re not seeing any significant recovery. If anything, costs are up and profits are not. That’s not a recovery.”
The Delaware Department of Labor non-farm, seasonally-adjusted payroll data showed 421,200 people were employed in January 2009 compared to 416,500 in April of this year. “There is some fluctuation on these numbers from month to month but, at best, we’ve seen a flat jobs situation for more than two years,” Rep. Hocker said.
Last Thursday, Delaware economic development officials announced the possible creation of up to 1,500 new jobs in 2012 attributed to the construction of Bloom Energy’s fuel cell manufacturing facility in Newark. On the same day, news broke that Allen Family Foods was seeking bankruptcy protection, casting doubt on the future employment of nearly 2,300 people that work for the Seaford-based company in three states.
“One step forward, one step back,” Rep. Lavelle said. “That is the way this economy has been and we’re making no provision for it, even with all this uncertainty staring us in the face.”
Last month, House Republicans made several suggestions regarding the disposition of the state surplus currently projected at approximately $320 million. Rep. Lavelle said the surplus resulted, in part, from out-of-state activity and has fooled some into thinking Delaware is out of the woods.
“We suggested moving up the expiration dates of several tax hikes enacted in 2009 to January 1st, roughly about 18 months ahead of schedule,” Rep. Lavelle said. “The purpose was two-fold: to release more money into the economy to spur activity, and to get the revenue out of the hands of the government, which has been wasting no time to find ways to spend it. Those suggestions were ignored, and now we’re looking at a bigger budget and a sputtering economy.”
Rep. Hocker said during the debate on the package of tax hikes enacted in 2009, he indicated they would hamper businesses’ ability to create new jobs. “Sun-setting those tax increases early would have been a positive step towards increasing employment,” he said.
Rep. Lavelle said one way for the state to act a little more sensibly in these uncertain times is to keep more cash on stand-by, something he says most Delaware families are already practicing.
“When you don’t know what the future holds, you hold onto more of your money,” Rep. Lavelle said. “It’s time that state government learned a lesson from the example being set by our families and businesses of all sizes.”
Under the state constitution, government can only spend 98-percent of projected revenue. However, Reps. Lavelle and Hocker say there is nothing preventing the state from spending less.
“If we only spent 96 percent of revenue, we’d have an additional buffer of approximately $70 million in unencumbered cash,” Rep. Lavelle said. “Like a general keeping troops in reserve, this would give us the ability to react quickly to problems we’re not currently anticipating and fill in funding gaps as needed.”
State Rep. Ruth Briggs King (R-Georgetown), a member of the budget-writing Joint Finance Committee, said the bulk of that reserve could be generated by eliminating an additional pay check being given to most state employees. A quirk of the bi-weekly pay period system used by the State of Delaware is that every 10 to 12 years there are 27 pay periods instead of the usual 26. Many organizations experiencing the same well-known fluke of this payment system have addressed it by simply dividing the annual salary of their work force over 27 checks instead of 26. Rep. King said if Delaware did this, the state would save $54 million in the new budget. Local school districts and their taxpayers would collectively save an additional $14 million.
“The final state revenue estimate of the current fiscal year will be released on Thursday,” Rep. Lavelle said. “Early rumors indicate these numbers could be up by an additional $25 million to $50 million. The state’s budget is growing significantly in the shadow of economic weakness at the national and state level. If we are not going to return the money to taxpayers, prudence dictates that we should set aside any additional funds to see what unfolds in the year ahead.”