Delaware Public Media

Budget passed: new tax plan breaks through extraordinary session

Jul 2, 2017

After forging a new tax deal late Sunday night while operating under an unprecedented continuing budget resolution, Delaware lawmakers balanced their $4.1 billion spending plan through boosts to real estate, alcohol and tobacco taxes.

 

 

Democrats and Republicans agreed to hike the realty transfer tax levied on each home sale by one percent, raising about $45 million this fiscal year.

 

House and Senate lawmakers signed off on the bill with little debate.

 

Higher taxes on alcohol and tobacco products are also part of the deal. Combined they would raise nearly $17 million this coming year.

 

“I think we lost an opportunity to get a more sustainable revenue portfolio for this state,” said Gov. John Carney (D), referencing the rejection of any kind of a personal income tax hike.

 

House Speaker Pete Schwartzkopf (D-Rehoboth Beach) agreed, saying the current plan won't provide a reliable way to help pay for Delaware's budget, but that it at least back fills a portion of cuts many lawmakers wanted to avoid.

 

Schwartzkopf wouldn't comment on whether he'd try to revive a personal income tax hike come January. He says he and other legislators need to reach some kind of deal sooner next year.

 

"We’ve all experienced what nobody ever has – this extraordinary session – and I don't think anybody wants to come back here to do it again," he said.

 

Negotiations among leaders in all four caucuses sputtered and then collapsed last week over prevailing wage rules changes and a personal income tax hike, only for them to discover a breakthrough within the past 24-hours.

 

“There was combativeness, there was cooperation, there was consternation, but then there was a conclusion,” said Senate Minority Whip Greg Lavelle (R-Sharpley).

 

Schwartzkopf said the atmosphere in backroom negotiations “had deteriorated so badly on those two issues.”  They immediately picked up once they were off the table, allowing them to reach a compromise Sunday night.

 

Carney notes he needs to reassess his approach to massaging and convincing legislators to go along with his proposals.

 

“I think maybe my frustration was that I expected that people would more readily accept, you know, rational arguments around why you should do one thing or the other in the fiscal situation,” he said.

 

The Association of Realtors in Delaware pushed back against realty transfer tax hike, saying requiring people to have that extra money up front when they buy may make homeownership unaffordable for some – especially young, first time home buyers.

 

Sen. Robert Marshall (D-Wilmington West) tabled an amendment that would have exempted first-time homebuyers, promising to bring the idea back in January.

 

Under the agreement, the Joint Finance Committee restored $66 million in previous cuts. Several programs – including infant mortality prevention, foster care funding and a first-time mother initiative had much of their budgets returned.

 

Nonprofits, senior centers and volunteer fire companies will receive grants-in-aid this year – albeit with a 20 percent cut.

 

Disclosure: Delaware Public Media received $72,000 in the current fiscal year from grants-in-aid.

 

Local school district officials had been wringing their hands over a proposed $22 million hit that they could’ve made up by unilaterally raising property taxes without going to referendum.

 

JFC members returned $11 million of it, but districts won’t be allowed to make up the difference without taxpayer approval.

 

House Democrats fell one vote shy of hiking the personal income tax Friday night, with Rep. Andria Bennett (D-Dover) the lone Democrat opposing the bill. Bennett also voted against all three tax measures Sunday night.

 

GOP lawmakers had demanded a list of concessions mostly focused on reining in state spending and changes to prevailing wage paid on public works projects.

 

Those task forces will be set up in the coming months, and Republicans dropped their prevailing wage provisions as Democrats backed away from the personal income tax.

 

Lawmakers described the budget as difficult, with negotiations among leaders spurring an unprecedented continuing resolution that would have expired Monday night.

 

“It took an extraordinary amount of compromise and creativity to come to agreement on a plan that we could get to the governor’s desk,” said Senate Pro Tem David McBride (D-New Castle).

 

A handful of legislators criticized the budget as they cast votes past midnight for the second-straight session.

 

Rep. John Kowalko (D-Newark South) compared it to a corpse, while Marshall called it a “house of cards” that the state will have to live with.

 

Lawmakers also passed a $590 million capital budget – $317 million of which is state funds.