Lawmakers reach budget deal in overtime

After hours of early morning negotiating, political brinkmanship and an extension, Delaware finally has a budget for next fiscal year.

After missing the June 30 budget deadline for the first time in decades, the Delaware General Assembly approved a budget very late Sunday that restored many of the cuts to nonprofits, public health programs and schools that were on the table last week.

They managed it by hiking taxes on real estate transfers, tobacco and alcohol. 

The deal came quickly after Democrats dropped their push for an increase in the personal income tax. Republicans had refused to provide the votes to pass that bill unless Democrats considered eliminating or reworking the prevailing wage for state construction projects, among other changes.

PREVIOUSLY: Read what happened when lawmakers missed the budget deadline

The debate over those ideas caused a contentious gridlock between the parties that lasted for months.

State government's costs are still growing rapidly, thanks to things like rising health care costs and expanding enrollment in public schools. Without the big windfall of the income tax increase or major reductions to state spending, lawmakers will likely be back in the same position next year.

"We've got a lot of hard work to do," said Gov. John Carney, shortly before signing the budget at 1:16 a.m. "This is only a first step." 

Carney was the one who proposed raising income taxes and eliminating itemized deductions, arguing it would help Delaware's revenues grow with the budget. The governor rejected a budget deal lawmakers offered him in the wee hours of Saturday morning.

He called the lack of an income tax hike a "lost opportunity." 

Speaker of the House Pete Schwartzkopf acknowledged that the deal he helped broker would not "get us out of the jam we're in next year." But he pointed out that Delaware was in a better position than other states that missed their budget deadlines — New Jersey and Maine both were forced into government shutdowns.

"This is not an easy thing to get done," said House Minority Leader Danny Short, R-Seaford. "Not everybody is going to be happy, but there's a lot of good things that occurred out of this — a good compromise, a good consensus."

The biggest new idea on Friday was the increase to the realty transfer tax. 

Delaware levies a 3 percent tax on real estate sales. Half of that goes to the three counties, and half goes to the states. 

Lawmakers added another percentage point, which will raise about $45 million this year and $72.9 million in the next year. All of the new money will go to the state.

The other two tax increases have been on the table for weeks.

The tax on cigarettes would increase by 50 cents a pack; Gov. John Carney had pushed an increase of one dollar. E-cigarette products would have a new 5-cent tax, and other tobacco products would also be taxed higher.

Those tobacco taxes would raise about $11.6 million 

The alcohol tax increase would bring in $5.2 million. Here's how rates would grow from a consumer's perspective: On a six-pack of beer, from 9 cents to 15 cents; on 750 milliliters of wine, from 19 cents to 32 cents; on 750 milliliters of spirits, from 74 cents to 89 cents.

Brewers, distributors and liquor store owners had protested the tax increase, arguing it would hurt their competitiveness with other states. 

Thanks to the revenues raised, legislators were able to blunt — but not entirely prevent — several budget cuts that had raised a public outcry.

The finance committee funded a $37.2 million grant-in-aid bill, which gives taxpayer money to nonprofit agencies, fire companies, and county paramedics.

That bill cut funding to all organizations by 20 percent. Last week, the Joint Finance Committee had said there was no money at all for such grants.

Nonprofit supporters, volunteer fighters and others who rely on it had flocked to Legislative Hall over the last days in protest. 

State public health programs, like the Infant Mortality Task Force, needle exchange program, cancer council, and nurse family partnership would take 10 percent cuts instead of 20. 

Health advocates worried that those reductions could stop vital services for the sick and poor in Delaware. 

The Education Sustainment Fund, a flexible fund that school districts use to pay for things like after-school programs or reading and math specialists, would be cut by $11 million instead of $22 million. School districts would not be allowed to raise property taxes to make up for the cut, as Gov. John Carney proposed. 

Department of Education programs designed to help Delaware students go to college were also reinstated.

The state would continue to pay for state troopers in Sussex County, which does not have its own police force.

Local tourism offices will be funded at the same level as last year. Their funding was completely eliminated under the previous budget. 

As of press time, lawmakers had worked with little open controversy. That was a far cry from the previous days, which saw fiery speeches and tense exchanges. Thursday's session ended after House Republicans stormed out. 

"I leave tonight very confident that we will take the same spirit of cooperation we saw over the last 24 hours into next year’s budget talks," Senate President Pro Tempore David McBride said, reading from a prepared statement. "And I know we can do a better job of expanding the discussion past simply balancing our budget and have a more robust conversation about our long-term vision for our great state."

Contact Matthew Albright at malbright@delawareonline.com, (302) 324-2428 or on Twitter @TNJ_malbright.