Budget panel: Tax collections fall short

• The state is showing a %2433 million deficit in the current year
• Revenue fell in the current year mainly on weakness in unclaimed property collections

Delaware's budget problem worsened Monday, with a panel predicting that taxes collected for state spending this year and next will fall more than $75 million short of earlier estimates.

The drop in tax collection estimates means lawmakers may have to consider budget cuts in the coming months, although the final revenue projections used to craft the next spending plan aren't due until June.

The nonpartisan Delaware Economic and Financial Advisory Council released the budget forecast Monday. While estimates for tax collections continue to fall, Gov. Jack Markell's administration expects to return another $20 million to the state's general fund that agencies will not spend this year.

That covers some of the projected tax loss, but still leaves about $55 million that budget writers will have to account for in the budgets for this and next year.

The state is showing a $33 million deficit in the current year that Office of Management and Budget Director Ann Visalli says she hopes to solve before June 30, which would still leave the General Assembly to contemplate more than $20 million in cuts for the next budget.

Delaware lawmakers budget on a two-year spending cycle and count on cash from the previous year to balance the next year's budget. That cash this year, however, has run dry and budget officials in Markell's administration now say they will work with General Assembly budget writers on a solution.

The forecasting advisory panel meets again in May and June before lawmakers must close the books on the budget for the next fiscal year, which begins July 1. Often, higher projections from the panel late in the budget cycle allow lawmakers to avoid making cuts to balance the budget.

But "if things don't change over the next two meetings, we'll have to look at the recommended financial plan from January," said Visalli, referring to Markell's $3.8 billion budget proposal.

Revenue fell in the current year mainly on weakness in unclaimed property collections, with corporations pushing back against Delaware audits, said Tom Cook, the state's finance secretary.

The forecasting panel reduced projected unclaimed property collections by $30 million in the current year Monday.

"There has been some resistance from companies to turn around and provide the state records, thus slowing down our ability to close audits in this fiscal year," Cook said at Monday's meeting.

Markell's budget relies on higher corporate formation taxes, already passed by the General Assembly, and revenue normally reserved for road projects to balance a spending plan pressured by higher spending for public education and health care.

But since January, when Markell unveiled his proposed budget, projected revenues have fallen more than $75 million. Administration officials are already pressuring state agency heads to find cuts in the current year to help balance the budget, and those efforts are expected to continue.

Budget weakness is also expected to complicate Markell's efforts to persuade lawmakers to sign off on higher gas and property taxes to fund road improvements and waterway cleanup efforts. Markell, meanwhile, is vacationing at the Grand Canyon ahead of next week, when lawmakers return to Dover.

"As we go through May and June, all those things get taken into consideration collectively," Visalli said. "There will be a lot of discussions."

The governor has proposed raising Delaware's gas tax by 10 cents, to 33 cents per gallon, and authorizing additional borrowing to pay for $500 million in additional road spending over the next five years. He's also asking for higher property taxes statewide to pay for waterway cleanup, curb stormwater runoff and flooding, and protect drinking water.

Lawmakers from both parties have balked at taking votes on higher taxes that might leave them vulnerable in an election year, while offering few alternatives. Legislation authorizing the tax increases has yet to be introduced in Dover.

Delaware Transportation Secretary Shailen Bhatt also warned Monday that if Congress does not shore up the federal Highway Trust Fund, which is facing insolvency, reduced federal transportation spending could jeopardize road improvements across Delaware.

Contact Jonathan Starkey at (302) 983-6756,

on Twitter @jwstarkey or at jstarkey@delawareonline.com.