Extra

State of Delaware
Office of the Governor

Gov. Minner Proposes FY2004 Budget With Responsible, Balanced Solution To $300 Million Structural Problem

$155M In Cuts Made, But No Layoffs, No Drastic Service Reductions, No Raiding Of Reserves

Dover – Governor Ruth Ann Minner’s Fiscal Year 2004 budget proposal contains further budget cuts while preserving core state government services. It also includes a revenue enhancement package necessary to keep the state from facing repeated deficits in future years.

In an address to a joint session of the General Assembly Thursday, Gov. Minner said her proposal for the budget that will run from July 1, 2003 to June 30, 2004 solves a structural problem inherent in the state budget: the fact that projected revenues for the next several years are below what state government is spending this year. The gap stands at $300 million for FY2004.

“It is time to solve the structural problem that exists in our budget and put Delaware on a firm financial footing for the future,” Gov. Minner said. “Because without significant change, this problem will exist for years to come.”

Gov. Minner proposed a responsible and balanced solution to the $300 million structural problem: $155 million in savings by cutting spending, eliminating positions and controlling mandated costs, and a $145 million revenue enhancement package that includes raising taxes and fees on corporations, decoupling from some federal taxes, increasing revenue from video lotteries and raising the cigarette tax.

The Governor said a combination of cuts and revenue is necessary to stabilize the state’s fiscal position for the long term.

The plan avoids raiding the state’s emergency reserve or “rainy day” fund. The Governor said such a one-time move would not solve the state’s long-term problem and would put the state in a fiscal crisis if there were an emergency like a hurricane, terrorist attack or the national economy sank again.

“Suppose your family reached the point where, on an ongoing basis, your income from your paycheck and investments was $1,700 a month, and your mortgage, bills and other expenses added up to $2,000 a month,” Gov. Minner said in her address.

“You could raid your savings account to make up the difference this month. But what if you had an emergency, like fixing the family car or making a necessary home repair, or someone got sick or needed a root canal? And then, what about the next month?” she said.

“No, responsible Delawareans would say cut back on spending, or find a way to make some more money. Or both,” Gov. Minner said. “My proposal today is to do both.”

The elements of Gov. Minner’s efforts to reduce spending and improve government service include:

§         Carrying into FY2004 many of the budget cuts made since September in the current year FY2003 budget;

§         Closing Governor Bacon Health Center, one of the state’s three underutilized nursing homes, and moving all patients and staff to the remaining two facilities;

§         Making government smaller by permanently eliminating 400 vacant positions in state government;

§         Reducing non-classroom funds to school districts and charter schools by 1 percent;

§         Creating a new Department of Safety and Homeland Security and moving the Division of Motor Vehicles to the Department of Transportation; and

§         Driving down increases in Medicaid and health care without stopping service to residents.

Beyond those and other proposed steps, further cuts to the budget to close the $300 million deficit would affect core government functions – education, health, social services, creating jobs – in unacceptable ways, Gov. Minner said.

“I believe at this time that the responsible response to the remainder of this challenge is a modest increase in our state’s revenue base,” she said.

Gov. Minner’s proposals to increase revenue coming to state government include:

§         An $89 million increase in the taxes and fees paid by corporations, an increase of 17 percent, mainly from the corporate franchise tax. This revenue category was raised by 43 percent in 1991 and by 31 percent in 1984.

§         Raising the state tax on cigarettes by 26 cents a pack, for a total tax of 50 cents a pack, bringing in $23.5 million in FY2004;

§         Decoupling from the federal phase-out of the estate tax, a move worth $14 million in the next fiscal year. Gov. Minner said that if President Bush succeeds in eliminating the tax on dividends that the state will have to decouple from that as well; and

§         Increasing the state’s revenue from video lottery machines by $16 million by allowing the three casinos to stay open longer, adding more machines, and by increasing the state’s share of the funds from the additional machines.

The Governor Thursday also highlighted the very few new initiatives contained in her budget proposal:

§         $5 million to fight cancer through screenings and treatment of the uninsured;

§         $390,000 to provide training for 100 foster families in order to handle the most difficult and distressed foster children;

§         $600,000 to help farmers obtain crop insurance, preventing them from going out of business;

§         Continuing the process of moving disabled people from institutions into community settings; and

§         Funding for the start of a badly needed new DMV facility in Sussex County.

“The proposal I present to you today is in keeping with our state’s tradition over the last 25 years of making responsible decisions that are focused on the future, even if they may be unpopular with some in the present,” Gov. Minner told the General Assembly in her address. “In addressing our structural budget problem, we have a choice between the sustainable and the temporary, between the responsible and the shortsighted.”

The Governor’s proposed budget can be found online at www.state.de.us/budget. And the full text of Gov. Minner’s address can be found at www.state.de.us/governor/speeches.

- 30 -