Markell's final budget includes changes to state income and franchise taxes, cuts throughout state agencies. Markell is projecting about $5 billion in state spending.

Delaware residents will find major changes when figuring their income taxes next year, counties will shoulder more costs and state employees will pay more in health care costs under a budget package submitted to the General Assembly on Jan. 12.

The Fiscal Year 2018 budget was the final plan to be submitted by Gov. Jack A. Markell before he left office Jan. 17. It reflects a 1.09 percent increase over the FY 2017 budget.

In all, Markell has projected about $5 billion in state spending for the year beginning July 1, a figure that only may be reached by overcoming a $350,027 budget deficit. As Delaware law requires a balanced budget each year, Markell’s plan contains changes that will increase state revenue but also lays out cuts in state programs.

In briefing reporters on Jan. 11, Bert Scoglietti, acting director of the Office of Management and Budget, said that as in other years when there is a change in administrations, Markell’s plan most likely will be altered somewhat by Gov. John Carney after his administration has had a chance to review it more thoroughly.

“It is more of a stepping stone, it certainly will be considered by the incoming administration,” he said.

Regardless, Scoglietti added, “There are a lot of tough decisions in this budget that will lead to much discussion in Legislative Hall.”

School districts to foot more construction costs

Scoglietti said the projected $350 million deficit in the operating budget can be attributed to two factors: an estimated $201 million shortfall in state revenues, projected in December by the Delaware Economic and Financial Advisory Committee and $149 million in compulsory Medicare and Medicaid expenses and health and social service program costs, and medical expenses within the Department of Correction.

In the FY 2017 budget, some of those obligatory costs were covered with one-time revenues from financial and legal settlements; as that money no longer is available, their costs must be covered out of the general fund.

In a move that is sure to affect plans for the state’s 19 school districts, Markell proposed a change to the formula that sets the state’s responsibility for funding major construction projects.

Beginning in FY 2019, the state will pay only 50 percent of all school construction costs; it currently provides funding for between 50 and 80 percent of those costs.

This will be effective with Certificates of Necessity issued by the state in FY 2018 for that will be included in FY 2019 budget requests. Districts cannot hold tax referendums to begin construction until the state Department of Education approves a Certificate of Necessity.

The means of paying for special school construction projects, for which the state provides 100 percent the of costs, will not change.

Cuts needed to wipe out projected deficits

To address the deficit, Markell is proposing to cut state programs, eliminate a school property tax subsidy and increase state employee contributions to their health care plans.

About $31 million will be trimmed from state agencies and the Open Space and Farmland Preservation programs will not be funded this year.

Thirty-one state agencies will see their budgets reduced from those of FY 2017; the smallest will be about $200,000 from the Advisory Council for Exceptional Citizens; about $9.4 million will be trimmed from the Department of Health and Social Services and $16.1 million from the Department of Education.

“Our office tried to work closely with state agencies to try to reduce spending in areas and try to minimize the effect on Delawareans and to protect the most vulnerable populations,” Scoglietti said.

A program to help seniors with medical issues will be cut, as it originally was set up to cover a shortage in Medicare’s prescription drug plan; there no longer is as great a need for the subsidy, Scoglietti said.

The state also will reduce transportation funding to the Department of Education; it now covers 90 percent of a district’s needs and will be reduced to 70 percent.

A state funded subsidy that helped senior citizens pay their school taxes also will be eliminated, adding about $25 million to state revenues.

Markell proposed state workers hired after Jan. 1, 2008, be required to take part in a consumer-driven healthcare plan and health savings account. Employees hired before that date would continue under their existing plans.

Members of the General Assembly would have to write new legislation to approve this idea; if endorsed by lawmakers, it would take effect on Jan. 1, 2018.

In addition, all state workers enrolled in health care plans will start paying deductable costs and a preferred health insurance premium enjoyed by state workers married to each other would be eliminated.

In a move to save about $10.8 million, a state partnership with county governments to assist with paramedic programs will be cut; presently the state shares the costs with counties on a 70/30 basis.

Changes in taxes

At the Jan. 11 briefing, Secretary of State Jeffrey Bullock said the governor is proposing to adjust corporate franchise taxes, raising the top tax rate on companies bringing in at least $750,000 annually. The new top tax rate would be $250,000, he said.

These taxes are fees companies pay to be able to incorporate in Delaware, he said, adding that the last corporate tax rate adjustment was in 2009.

“Franchising is particularly strong right now,” Bullock said, noting that new franchise formations have set records for the past three years.

“We feel pretty comfortable in this increase at this time, given the attractiveness of Delaware,” Bullock said.

Markell proposed eliminating itemized deductions when paying state income taxes and to increase the standard deduction by 50 percent; currently the deduction for a single person is $3,250, he said. That will go up to $5,000. The standard deduction for married couples will increase from $6,500 to $10,000, he said.

The minimum age for taking advantage of pension deductions will go from 60 to 65 years; the pension exclusion amount of $12,500 will remain the same.

Taxes on the sale of cigarettes, which now is $1.60 per pack, will go up by one dollar, to $2.60.

Money provided for construction projects

In addition to his budget cuts, Markell proposed funding several capital projects to help with economic development, quality of life and public safety issues in the state.

He has earmarked $8.5 million to the Downtown Development District program, $10 million to recharge the state’s Strategic Fund and $5.8 million for new libraries, including facilities in Harrington, Millsboro, Selbyville and Duck Creek.

A total of $19.2 million has been projected to continue upgrades to the state’s emergency radio system and to begin work on a new building to house Troop 7 in Lewes.

In addition, the governor is proposing about $136.5 million for construction projects at state-run colleges as well as capital project in five school districts, including Caesar Rodney, Cape Henlopen, Brandywine and Christina.

Carney weighs in

About an hour after the budget was formally released, Carney’s office issued a statement.

“Gov. Markell and his team deserve our thanks for putting forward another balanced budget, and we will review the specifics of his plan,” Carney wrote. “It’s no surprise that Delaware faces a challenging financial situation, and we need a budget reset that looks at state spending and our revenue system.

“We are very focused on this problem,” Carney said. “Over the coming weeks and months, we will work with lawmakers of both parties on a sustainable, long-term solution to our budget challenges.”