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At its
meeting on Dec. 15, the official state forecasters will increase
their estimate of state revenue in the fiscal year ending next
June 30 by $32.3 million and project a revenue growth rate of
7.5%, up from an anemic four-tenths of one percent in fiscal
2003.
The
anticipated bottom line is now $2,618.6 million, up from
$2,436.4 million.
Looking
farther into the future, the council is now projecting 4.7%
revenue growth in fiscal 2005 and 3.4% in fiscal 2006. In
September, it was looking for 6.2% growth this year and 4.3% and
3.6% in the out years.
The
council's December forecast is a key one because it forms the
basis of the budget that Governor Ruth Ann Minner will propose
to the General Assembly in late January. By law, there is a
ceiling on the amount the legislature can appropriate from the
state's general spending fund based on the financial advisory
council's forecast.
No one on
the panel is ready to suggest a return to the halcyon days of
the 1990s, but current numbers crunching is generating a renewed
optimism.
There is
a major caveat to that, however, because, contrary to the usual
pattern, job creation, both in Delaware and across the nation,
continues to lag, with no more than half of one percent growth
anticipated this fiscal year.
The
Delaware forecasters are particularly wary of workforce
downsizing and loss of relatively high-paying jobs at Du Pont
and the Daimler-Chrysler and General Motors automobile assembly
plants. A committee member quoted a Du Pont official as saying
that company can hire three graduates from Massachusetts
Institute of Technology in India for less than it costs to hire
one American with those credentials. Assembly line automation,
it was said, is enabling the plants "to make [significantly]
more product with fewer people."
The
recovery "is modest by historic standards, but one that is
taking hold," David Gregor, the Department of Finance staff
member who prepares and presents its forecasts, told the
financial advisory council's revenue committee as it was
preparing its recommendation to the full council. The council
has rarely, if ever, not accepted the committee recommendation.
Ken
Lewis, the University of Delaware professor who chairs the
committee, said he is "a lot more confident across the board."
While
national confidence is being buoyed by such things as the Dow
Jones average crossing the 10,000 threshold, Delaware's
financial officials are pinning theirs on a couple of 'solid as
money in the bank' indicators.
Personal
income taxes withheld from employees' salaries and wages are
running $14.2 million ahead of a year ago at this point in the
fiscal year. If that pace continues, it will yield a 4.7% growth
rate in the overall personal income tax component on the income
side of the state budget this year and better than 6% in each of
the coming two fiscal years. There was 'negative growth' --
six-tenths of one percent -- in fiscal 2003.
The
Delaware econometric model now projects 4.7% growth in personal
income this fiscal year, which is nearly double what it was last
year. The personal income tax is the largest source of state
revenue, accounting for about 30% of the total.
Collections from the gross receipts tax -- Delaware's rough
equivalent of a sales tax -- are up $4.9 million so far this
year with growth in consumer spending expected in proportion to
gains in personal income, tempered somewhat by concerns over job
security and scarcity.
Also
coming on strong -- up $7.7 million so far this year -- is the
real estate transfer tax. That is attributed largely to a
residential housing boom, particularly on the seashore side of
Sussex County. In part, the committee was told, that is being
driven by demand from the homosexual community, with at least
one townhouse project in the Rehoboth Beach area now being built
exclusively for that market.
And, to
be sure, the continuing drive to collect escheat funds owed to
the state by corporations, particularly in the financial
services and retail sectors, chartered here. Those collections
are up $8.8 million so far this year. Gregor said pending audits
could boost such income this year to more than $300 million, up
from $231.5 million. That was the one income stream which grew
during the economic downturn.
Escheat
funds are money in forms ranging from bank accounts to
unredeemed gift certificates belonging to persons who cannot be
identified or located. The U.S. Supreme Court has ruled that
that money belongs to the state where the company holding it is
chartered.
Corporate
franchise tax collections continue to lag behind last year --
running $10.9 million less this year so far. With an economic
recovery, however, corporation formation and new public stock
offerings are expected to pick up in calendar 2004. With that in
mind, the financial advisory council will stick with its
September forecast that net franchise tax collected this fiscal
year will be 17% higher. That matches the size of the rate
increase enacted by the Assembly last June as part of its state
tax restructuring package. Corporate franchise tax is the second
largest source of state income, accounting for just under 20%.
On the
other hand, formation of limited-liability corporations and
partnerships has resulted in a $1.9 million increase in
franchise tax from that source and a projection that full-year
income will more than double the $25 million collected in fiscal
2003. The number of new entities using that form of business
organization and existing corporations converting to it was at
an all-time high last year and is expected to set a new record
this year.
As
expected, doubling the cigarette tax as part of the
restructuring has resulted in a parallel doubling of income from
that source -- to $29.6 million so far this year from $14.9
million at this same point in fiscal 2003.
Still
uncertain, Gregor told the committee, is the effect of the ban
on smoking on revenue from slot machine gambling. December is
the first month in which there will be a direct year-to-year
revenue comparison since the ban took effect. Revenue so far is
running $5.9 million behind a year ago. He noted that is in line
with the council's pre-ban projection. Since the ban was
imposed, casinos have been allowed to increase the number of
machines and extend operation hours.
The
committee will recommend, however, that the full financial
advisory council lower its estimate of revenue from the
combination of slot-machine and traditional lottery gambling by
$5 million from what its projected in September. That will
reduce the anticipated growth rate from that source for the full
year to 5% from 7.3%.
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