Gov. Jack Markell’s proposed budget calls on state employees to take an 8 percent pay cut and raises taxes for residents who make more than $60,000 a year. In his first stab at reducing a $750 million shortfall, the governor said he wants a plan that is compassionate and responsible.

To meet Delaware’s historic and still-growing deficit, Markell is also pushing the General Assembly to reauthorize sports betting at the state’s three racetracks, expand betting for up to 10 additional venues and add three new gambling casinos.

“We will spread our sacrifices so no one citizen or group bears a disproportionate burden of this challenge. Our plan relies mostly on cost cutting, but it does raise revenues. It is not perfect, and there are many elements of it that I would prefer not to have to propose. But I believe it is a responsible and reasonable approach to a historic challenge,” he said.

Delawareans are struggling to keep their jobs and many are struggling to keep food on their tables, he said, as he addressed the budget shortfall Thursday, March 19 in Dover.

An 8 percent salary reduction for state employees would allow the state to avoid 1,500 layoffs. It would also save about $92 million, he said. Markell estimates expanding gambling will bring in $55 million in its first year.

Markell also said requiring state employees to switch out three holidays for three floating days off would cut back on overtime costs and save the state $1 million. State employees may also face reduced health benefits, as the state pays $400 million in healthcare costs. The payroll cuts and benefit reduction would result in employees taking home 10 percent less per year overall.

A 45-cent tax per pack on cigarettes and a 50 percent increase in the tax on alcohol would also raise about $20 million in 2010, he said.

Big cuts in Markell’s budget include $38 million for farmland and open-space preservation, and moving that money to the state’s general fund.

Gross receipts, corporate franchise and public utility taxes will also increase under Markell’s proposal.

Markell’s announcement comes at a time when revenue is dropping, and residents need state services even more than before, he said.

President Barack Obama’s stimulus package provides tax cuts and credits and is a one-time assistance bundle that helps the state, he said.

“We’ve cut more than we raised,” Markell said. The hurdles may only get higher, he said. “Every month that we go forward, the shortfall may fall,” Markell said.

Not in the clear

Sinking corporate profits and declining real estate taxes have severely reduced state income, as noted by the state’s financial advisory council, which revised revenue estimates by $235 million.

Earlier in the week, the Delaware Economic and Financial Advisory Council (DEFAC) reduced its revenue estimates by $85 million for 2009 and an additional $150 million for 2010.

In December, DEFAC estimated a $600 million shortfall for 2010, and the additional $150 million shortage has created a $750 million revenue gap for next year, the largest deficit in the state’s history.

Many lawmakers expected the shortfall; some didn’t realize how far off estimates would be. Legislators point out that they are not immune to state employee pay cuts.

“In 2010, we’re still looking at huge shortfalls by that asteroid that hit on Monday,” said Rep. Joe Booth, R-Georgetown. He said the state would be reimbursed $90 million for Medicaid in 2009, which should help. “But those dollars have already been spent,” he said.

Grants-in-aid, many of which are spent on municipal services, such as police, paramedic and fire departments, will be affected, he said.

Booth said lawmakers had to refuse new applications in 2008, when the state received 45 applications.

“We didn’t consider any in ’08,” he said. Still, he said the state received an additional 30 applications in 2009. Last year about $45 million was spent on grants-in-aid for fire companies and historical groups, but the money is drying up, he said.

Rep. Pete Schwartzkopf, D-Rehoboth Beach, said he expected shortfalls, but didn’t realize the extent.

“We expected a drop, but I didn’t expect it drop that much. In June we expected it to be around $700 million, but obviously by March it’ll easily be $750 million,” said Schwartzkopf, who said revenue declines for March have not yet been calculated.

Experts say those numbers might increase after DEFAC meets again in April.

“The only news we have is bad to worse,” he said.

“What $600 million meant to Delaware now increased to $750 million, and it’s going to be more,” said Schwartzkopf.

Schwartzkopf said when it comes to state government job and staffing cuts, rumors are flying as to which state agency will be hit the hardest. He said he’s received a flurry of constituent phone calls asking him not to cut state departments or jobs.

The Department of Education takes the lion’s share of the state’s personnel costs, however.
“The problem with a time like this is everyone is scared when rumors become fact. We’re trying to put the correct information out there, but we don’t have the correct information yet,” he said.

Schwartzkopf said getting rid of every police officer and shutting down the state police, including civilian support staff and even helicopters, would only save the state $121 million. Closing the Department of Correction would save $240 million. “Based on today’s numbers that would mean we’re still $400 million in the hole. And, that’s two big departments. Two big departments we can’t do without,” he said.

Sen. George Bunting, D-Bethany Beach, said the Cape Region is resilient, and Sussex County’s tourism industry might help the state pull through rough times. Further, he points to recent upticks in the stock market. Still, new shortfalls are overwhelming, he said.

“In fact, staggering is an understatement. We’re concerned about the numbers next year,” he said. “We’re all hoping between the stimulus and the stock market it will improve the situation, but there’s still no quick fix,” he said.

Bunting said the Federal Reserve Board is trying to do the right thing. “I think you’re starting to see it out there,” he said. He also said residents here have stable retirements and the area will also remain a popular vacation destination.

Bunting, who was president of the Rehoboth Beach-Dewey Beach Chamber of Commerce in the 1970s, said the Cape Region has faced tight times in the past.

“In the ‘70s, we had a gas crisis. As president of the chamber, we actually had to get gas allocations for our local gas stations. But, we still had a good season overall. Historically, resort people will still take their vacations,” he said. “I think we’ll have a great summer,” he said. “In a lot of ways it’s a tough winter. But spring is starting to pop up in our area. We have a new PNC building next door.”