First Meeting Set for Panel Examining Delaware Revenues - WBOC-TV 16, Delmarvas News Leader, FOX 21 -

First Meeting Set for Panel Examining Delaware Revenues

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(Photo: MGN) (Photo: MGN)
 NEW CASTLE, Del. (AP) - A newly formed state review panel began work Friday on exploring how to make Delaware's revenue portfolio less unpredictable and ensure that revenues more accurately reflect economic conditions in order to provide more certainty in budget forecasting.

At its inaugural meeting, the Structural Revenue Review Committee discussed challenges posed by a fiscal system in which 56 percent of the state's revenue portfolio is based on "inelastic" sources that do not respond to changes in Delaware's economy. Those revenue sources include lottery and gambling, abandoned property collections and bank and corporate franchise taxes. Other revenue sources can be volatile, making it difficult to make long-term projections and budget accordingly.

Meanwhile, baby boomer retirements and the aging of Delaware's population are taking a toll on the state's purse strings.

Under the current structure, exclusions of retirement income and Social Security from personal income taxes, along with additional tax credits, deductions and subsidies over age 60 and 65, cost the state more than $130 million last year.

"We know that going forward, demographic and other trends are going to require some tough choices," said panel chairman Joshua Martin III.

The task for the review panel, which is to issue a report in April, is to determine what if any changes should be made to the current revenue system. Options include broadening the tax base, making changes within existing revenue categories, rebalancing the existing revenue sources, and looking for new revenue sources.

"We're running out of rabbits to pull out of the hat," said Secretary of State Jeffrey Bullock, whose department oversees incorporations and other business entity formations that bring in hundreds of millions of dollars each year in franchise taxes and fees.

The focus on any reforms, officials said, should be on the adequacy and stability of revenue sources, with an eye to making sure the state remains economically competitive. Related issues include the fairness of the tax burden, simplicity, and making sure that the tax structure has the least amount of impact possible on economic decision-making by residents and businesses. Currently, the top 1 percent of Delaware households pay one-quarter of the state's personal income taxes.

"There is no single perfect tax," Department of Finance analyst David Gregor told panel members.

Newly elected Republican state treasurer Ken Simpler, who was a chief financial officer and investment portfolio manager in the private sector, raised several technical questions about the methodology and assumptions being used to present an overview of the problem to panel members. He also implied that it might be helpful to analyze the revenue system within the context of state spending trends as well, an idea that received a lukewarm response from fellow panel members.

"I'm happy to look at expenditures as well, but we have a more narrow mandate than that," said state Sen. Bryan Townsend, D-Newark.

Pete Ross, a former state budget director, suggested that the "big elephant in the room" that was not being talked about was the spiraling costs for Medicaid, which is costing state taxpayers about $700 million a year.

The committee is scheduled to meet again on Jan. 30.
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