The good times for state revenues won’t last

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Good afternoon,

It was good to see that the Delaware State Chamber of Commerce endorsedsocking away $125 million for tougher times.

Earlier, the Delaware Business Roundtable had urged legislators not to use surplus funds for programs that would require multi-year funding.

“With exceptionally good forecasted numbers coming from DEFAC, the General Assembly should seize this opportunity to better prepare the state for inevitable economic downturns and subsequent budget shortfalls. Setting aside $125 million of additional revenue to meet a goal of $350 million, the approximate size of our last budget shortfall, is prudent and good stewardship of the public’s money,” stated Chamber President Michael Quaranta.

As you might remember, a bipartisan coalition that includes Gov. John Carney wantedto set aside revenues when times are good as a way to deal with future shortfalls. It goes beyond the rainy-day fund, which sets aside revenues but is used to maintain the state’s blue-chip credit rating.

The state has volatile revenue sources that include personal income taxes and corporate fees that can be affected by even a modest downturn.

A number of legislators in Carney’s party feel otherwise and believe that all available money should be spent. So far, efforts to put the process into the state Constitution have fallen short.

A handful of members of the General Assembly want to add a couple of extra income tax brackets for wealthier taxpayers while providing little or no relief for middle-income residents who pay a high-income tax rate when compared to residents of other states.

In the past, the “spend it while you got it stance” has led to unsustainable programs that have been cut or eliminated in tougher times.

On the other side, there have been scattered calls for the money to be returned by tax cuts.

The experience of other states has not been encouraging since the recession. Bigtax cuts can lead to tax hikeswhen economic conditions soften,or when revenues do not live up to breathless predictions of stronger growth.

The Legislature faces other challenges that include liabilities for employee health care costs. Such shortfalls make the case for setting aside funds even stronger.

The Delaware Business Now Newsletter will not go out on Monday in observance of Memorial Day.

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