The Delaware Office of Management and Budget estimates that the state will have a budget shortfall of about $350 million if the status quo is maintained.

One of the final responsibilities Governor Markell met before leaving office was the submission of a proposed budget to the General Assembly. This is preliminary and subject to getting marked up by the legislators, but it is worthwhile to know the general direction in which this is pointing.

The governor’s proposed budget seeks to plug the gap with $212 million in additional revenue and $138 million in spending cuts. The additional revenue would come from the following:

  • An increase in the maximum annual franchise tax payable by very large Delaware corporations to $250,000. This single change would account for more than half of the new revenue. It may make businesses take a second look at states like Nevada and Wyoming when they set up new corporations expected to have more than $750 million in assets or revenue.
  • Marginal rate at the top bracket for individuals (taxable income over $60,000) increases from 6.6% to 6.8%
  • No more itemized deductions for individuals. However, standard deductions would be increased by 50%.
  • Income exclusion for elderly would be available only to those 65 and older instead of 60 and older.
  • Real property transfer tax increases from 1.5% to 2.5%.
  • Excise tax on cigarettes increases form $1.60 per pack to $2.60.

It is important to realize that when Delaware changes its marginal income tax rates, it usually does so retroactive to the beginning of the year. So, if this is enacted as is, by the time it becomes law, some people may already be under withheld or underpaid.

The spending cuts proposed include about $32 million of across-the-board cuts to government agency budgets. Just over half of the would come from the Department of Education. The Department of Health and Social Services would absorb $9.4 million in cuts.

Three state programs would also lose funding: Open Spaces and Farmland Preservation would lose nearly $10 million each while Energy Efficiency would lose nearly $5 million.

Proposed changes to the health insurance plan for state employees would save the state about $24 million.

Currently, the state pays each school district the lesser of $500 or 50% of the school district taxes on each property. The budget proposal eliminates this subsidy. Consequently, if this provision remains in the budget, property owners should expect their school district taxes to increase. The state would save about $25 million by eliminating the subsidy.

The proposed budget would eliminate the state subsidy to the counties for paramedics. This is expected to save the state about $11 million. Property owners may see an increase in their county real estate taxes, if this is enacted.

Of course, the proposals described above are just that – proposals. The final budget bill enacted in a few months may look much different. If you would like to discuss how the Delaware governor’s proposed budget might impact you, please don’t hesitate to contact our office.

Posted in