Delaware budget: Millions in senior tax breaks cut

Seniors, construction workers and state employees won't be happy with Gov. Jack Markell's budget.

His proposed $3.9 billion spending plan, which would take effect July 1, cuts $12.6 million in property tax subsidies for Delaware seniors; includes no general salary increase for state workers; and carves $40 million out of transportation infrastructure projects to pay for operating expenses like Medicaid and public education.

The budget, Markell's seventh and second-to-last as Delaware's chief executive, would raise state spending 2.4 percent over the current year's budget. Lawmakers have ultimate say over state appropriations, and the Legislature begins a six-week break Thursday to begin budget hearings.

Markell's plan includes $4.5 million for new services to fight addiction; $9.5 million for public education programs, including student safety measures, and $3.2 million for community-based services to help Delawareans with mental illnesses.

Separately, Markell proposed a $385.8 million capital budget for improvement projects across the state. Of that, $139 million would fund capital transportation projects. Markell's budget also calls for eliminating $1.3 million in transportation subsides for parents of private school students.

"This is a very tough budget," the governor said during his annual budget address on Thursday.

For Markell, who leaves office in 2017, the proposed budget represents just another year of difficult choices and very few investments in new projects. Expenses driving the budget are familiar.

The state faces $37.6 million in new employee health care costs; $7.8 million to annualize a $500 state employee raise that took effect January 1; $15.3 million to keep pace with new student enrollment; and $13.7 million for higher payments on the state's debt.

Delaware taxpayers would not see higher costs for Medicaid, the low-income health care program jointly funded by the state and federal governments. That's the result of higher reimbursements from the federal government, state officials said.

Sen. Colin Bonini, a Dover Republican who can be critical of public spending proposals, was unusually complimentary of Markell's proposals on Thursday. But he said irresponsible public spending led to strained resources and predictably tight budgets.

"I think they are being responsible with this budget," Bonini said. "These quote-unquote tight budget years are completely predictable because we've had 20-plus years of reckless spending. We have to fundamentally re-imagine the services our state government provides."

Lawmakers could balk at eliminating the private school transportation subsidy, which Markell also unsuccessfully proposed last year, and cutting tax breaks for seniors.

"I don't like anything that really affects our seniors," said House Speaker Pete Schwartzkopf, a Rehoboth Beach Democrat. "They've worked their entire lives and paid into the system and social security and taxes and those type of things. When you get older, you're supposed to get some breaks, I think."

Sen. Harris McDowell, a Wilmington Democrat and co-chair of the General Assembly's budget-writing Joint Finance Committee, said the state must find ways to provide more compensation for state employees.

"What we came up with last year [$500 raise] was almost an embarrassment," McDowell said. "I believe we are at a very severe point where we're going to lose very critical people if we can't do a little more."

McDowell said, generally, the governor's budget provided a "very good starting proposal."

For seniors, the state currently pays up to $500 of a property owner's school taxes. Under the governor's proposed budget, the state would pay about half of that. Residents 65 and over have to have lived in Delaware for at least three years to qualify for the subsidy.

The cost of providing senior tax subsidies, which include additional deductions and credits, has more than doubled in the last decade. A projection of the state's aging population shows that a quarter of residents will be over 65 by 2035.

Delaware's population is getting older more rapidly than most other states in the country, Markell said.

"I realize this is a difficult proposal, but the cost to the state, the cost to taxpayers has been significant," he said. "If we want to continue to fund things like education, police and the like we're going to have to find some additional resources."

Markell also proposed just $10 million for the state's strategic fund, which is used to provide economic development incentives to companies adding jobs in Delaware. That number is down from $22.2 million last year.

Since taking office, Markell said 630 fewer actual people work for the state, "which has been been frankly painful for our state's agencies."

Markell also provided funding details for some of the education and addiction services plans he touched on in his state of the state address last week.

The governor budgeted $9.5 million for education programs, including programs for English language learners, school safety, resources for extended day schools and after-school programs in high-need schools, and money to recruit and support teachers, among other programs.

It does not include $11 million for special-needs students, proposed by a group of Democratic lawmakers who say they are targeting a major gap in state services.

To tackle the addiction crisis, which saw 185 suspected overdose deaths in Delaware last year, his $4.5 million plan, announced earlier this week, includes withdrawal management services, more sober living beds, and young adult residential treatment.

"It is a crisis," Markell said. "Everyone knows someone who has been touched by this disease."

Markell's capital budget proposals included $10 million for a container crane and infrastructure improvements at the Port of Wilmington; $3.15 million for the Riverfront Development Corporation in Wilmington; $1.2 million for the renovation of the cafeteria at the James T. Vaughn Correctional Center for the Culinary Arts Program, which will be named after Matt Haley, a Delaware restaurateur who tragically died last year; and $3.6 million for new fingerprinting equipment and firing range improvements for state police.

The capital budget would receive about $15 million in cash. The rest would be paid with new borrowing. The current year's budget includes $23.8 million in cash.

McDowell, the Joint Finance Committee co-chair, said the operating budget will likely need the $15 million now earmarked for capital budget projects. "Right now, I don't see how we can give cash to the Bond Bill," McDowell said.

Another $89 million in capital money, all debt, has been allocated for public education capital projects in the Caesar Rodney, Cape Henlopen, Delmar, Lake Forest, Milford, New Castle County Vo-Tech, Polytech, Red Clay and Smyrna school districts.

Markell is also proposing $21 million for projects at Delaware State University, Delaware Technical and Community College, and the University of Delaware.

The governor also included $5 million for libraries in Delmar, Lewes, Harrington and the project in New Castle County along Del. 9 and US 13.

He also allocated $7 million for his Downtown Development District program. Seaford, Dover and Wilmington were all awarded the status from the first round of applications. Attorney General Matt Denn is hoping to secure an extra $4 million for the project from a $36 million pot of settlement money from Bank of America and Citigroup.

The budget does not include money for the state's ailing casino industry. Officials on a panel studying how to revive the industry recommended a $46 million plan over two years for the casinos, but the effort is not supported by the Markell administration. On Thursday morning, Dover Downs Gaming and Entertainment Inc. reported an over $700,000 loss for 2014, its first annual loss since 1996.

Schwartzkopf said there were things in the budget he did like – no new Medicaid spending – and things he did not like – the cut to elder tax subsidy.

It's a difficult time to form a budget, he said. There have been many years in a row where the state has faced a deficit.

"When you're in year seven everything you cut, or whatever, bleeds really bad," he said.

Contact Jon Offredo at (302) 678-4271, on Twitter @JonOffredo or joffredo@delawareonline.com.