Delaware Public Media

Income tax hike, cuts to schools, seniors balance Gov. Carney's budget

Mar 23, 2017

Gov. John Carney’s (D) first operating budget proposal trims spending on education and handouts to seniors while upping taxes on big corporations and workers’ paychecks.


The $4.1 billion spending plan evenly splits a mix of tax hikes and cuts as it seeks to fill in a projected $386 million revenue shortfall.

“They want to know that everybody’s going to share in the solution,” said Carney, referencing the hundreds of Delawareans who showed up to a recent slate of town hall meetings from Hockessin to Seaford.

In education, the governor is cutting a combined $37 million that trickles down to each school district – $22 million of which the districts could unilaterally raise by upping property taxes without a referendum.

But that has some, like state Sen. Ernie Lopez (R-Lewes) worried.

“I think it may be a little bit of a kick in the teeth to the folks who have recently passed referendums and also to school districts that are looking to plan them in the immediate future,” Lopez said.

That would average about $38 annually per household statewide, according to budget officials.

Ballooning public school enrollment is one of the main factors driving up budgetary pressure year after year in Delaware, with Carney having to cover about $25 million to hire new teachers by law.

Rep. John Kowalko (D-Newark South), a fierce advocate for education, says it shouldn’t be considered a chore to fully fund education.

“This is not a burden that we can turn our backs on. It’s a necessary burden and I find it very disturbing that it’s portrayed as a way to cut some expenses,” Kowalko said.

Carney wants to raise personal income tax rates across all brackets between 0.2 and 0.4 percent while eliminating itemized deductions.

In return, the standard deduction will leap to $5,000 for individuals and $10,000 for families.

Carney called drafting the proposal “an exercise in making very tough decisions.”

“Look, if there’s something in that package that you don’t like and you want to take it out you’ve got to add something else,” he said. “If you don’t like one cut you’ve got to either add another cut in or add revenue in.”

Progressive Democratic lawmakers in the room questioned Carney’s choice to not add on another income tax bracket for the state’s wealthiest. The cap currently sits at $60,000.

But Lopez had a similar reaction to the proposal, but in a different way.

“Right off the bat that’s a serious concern for me. I don’t want to say it’s a nonstarter and I promise this governor, I think all of us are going to be working on a bipartisan basis, but again, I was a little bit taken aback to see that was something that was so prominently displayed in the presentation.”

Anyone 65 years of age or older currently receives up to $500 in credits each year towards school district property taxes. Carney’s proposal would drop that to $400, saving $5 million.

All other tax breaks for seniors will only kick in once they reach the age of 65, beginning in 2022.

The state is slashing 200 vacant positions, while also tweaking the amount public workers pay towards their health insurance, saving a combined $11.5 million.

Dentists accepting Medicaid patients could also see their reimbursements lowered by nearly 15 percent.

“This is a series of tough, difficult decisions that could have negative consequences,” Carney said.

The world’s biggest corporations will also contribute.

Those that incorporate in Delaware for its lax transparency requirements and respected judicial system will pay more for an annual license fee, raising more than $115 million.

That won’t apply to small businesses or LLCs.

Under the plan, the cigarette tax would jump by a dollar a pack to $2.60, while e-cigarettes will now be included under the state tax law at 30 percent of its wholesale cost.

One of the few new spending priorities of the Carney Administration centers on the Department of Correction following a Feb. 1 hostage crisis at James T. Vaughn Correctional Center. Correctional officer Steven Floyd died during the standoff.

He wants to boost hazardous duty pay for correctional officers, hire new prison guards and set aside cash for training and equipment.

All told, the move would cost $8.3 million.

But it’s not enough for correctional officers, who handed a list of demands over to the governor’s office last week.

“Dozens of officers have already quit or retired and I expect several dozen – if not hundreds – to do so now and a $1,500 pay raise won’t keep them or attract any new officers,” said Geoff Klopp, president of the Correctional Officers Association of Delaware.

Klopp called the proposals insulting and not enough to help quell the unrest at Delaware prisons since last month’s standoff.

“There’s going to be more that will have to be done,” Carney said, noting an ongoing criminal investigation and independent review.

The First State has faced significant structural problems for years, with small increases in revenue swallowed by higher costs associated with Medicaid, state employee health benefits and more.

Carney says he’s trying to address those issues, but he didn’t take as drastic of an approach as former Gov. Jack Markell (D) in his final budget.

“The most important objective is longer term, more robust growth. We have lots of opportunities to redevelop existing underutilized industrial sites and other opportunities to revitalize our economy and we need to do it with a structure that works.”

Markell tried to rake back millions of dollars from counties by tweaking the realty transfer tax share.

He argued the state pays for many services traditionally overseen by counties, like jails, road maintenance and other initiatives.

Carney also didn’t take as much of a swing at public worker healthcare costs. He’s proposing a $6.5 million cut while leaving the specifics to a state committee to work out.

All state agencies will take a 4.5 percent cut, while also axing 200 vacant positions – many of which haven’t been filled for at least two years.

Overall, Republican reaction has been muted compared to years past, while Carney’s own party isn’t hailing the plan either.

Talks among the leaders of all four caucuses in the General Assembly that were supposed to start in January are expected to ramp up in the coming weeks.

Carney will address a joint meeting of lawmakers next week.