Analysis: Legislation aims to smooth out budget roller coaster

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Legislation that came out of last year’s chaotic final days ofthe General Assembly has been introduced. that calls for a budget stabilization fund that would give legislators and governors fewer incentives in tapping into budget surpluses.

House Bill 460, introduced by lead sponsor Rep. Quinn Johns, D-Middletown, would also restructure the state’s income tax rates and reduce itemized deductions.

The bill has a large number of co-sponsors from both parties.

The bill represents the first step in a constitutional amendmentthat would require approval from two general assemblies.

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HB460

The legislation would require a budget stabilization fund that would. that is required in keeping the state’s blue-chip debt rating.

The budget forecast process would be replaced by an index based on indicators of growth of the state’s economy and tax revenues. The bill also calls for the “statutory enactment of structural reforms to the Personal Income Tax by broadening the tax base.”

During the final days of last year’s session, legislators wrestled with a $400 million-plus budget gap that was filled by a combination of cuts and revenue hikes.

Wrangling over the issue led to the General Assembly not meeting its deadline and being forced to go back into session and enacting a compromise.

One of the outcomes of the situation was a measure that led to the formation of a Delaware Financial Advisory Council group that came up with the recommendations contained in the House bill.

The contentious process led to cuts in Grant-In-Aid funding that have continued to be felt in the nonprofit sector and a proposal by the head of the Joint Finance Committee to use all of the state’s lodging tax to balance the budget.

That did not happen. The lodging tax is used to add to state revenues, but also for tourism promotion and beach replenishment.

There were also concerns that the restructuring of the Delaware Economic Development Office intoa small business and tourism unit and the Delaware Prosperity Partnership, which receives some private funding, was driven by budget concerns.

Some claim the process, which led to job cuts at DEDO, weakened the state’s economic development efforts.

The Prosperity Partnership now has a new director and is mapping out its strategy.

Despite additional revenues that have added nearly a half a billion dollars in additional revenue from the past budget cycle, the state faces a structural budget deficit.

The bleaker long-term outlook is sluggish income growth, rising health care costs for state workers, a growing retiree population that receives state tax breaks, and non-salary compensation for state workers that is out of line with companies in the private sector.

Longer term, the state’s pension system will require further reforms after the state bought time from a legislative fix.

At the same time, the state faces a tight labor market that makes salaries, minus benefits, uncompetitive with some comparable positions in the private sector.

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