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Carney proposes tax increases, cuts to address budget woes

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DOVER, Del. (AP) — Democratic Gov. John Carney is proposing a mix of tax increases and spending cuts to balance a budget for the fiscal year starting July 1.

Carney on Thursday unveiled his plan to maintain core government services while closing an estimated $385 million shortfall between expected revenue and expected expenses for fiscal 2018, based on current year funding.

The proposed $4.09 billion operating budget represents an increase of about 0.3 percent over the current budget. It includes $40.7 million for grants to nonprofits, fire companies and community agencies, down from about $45.9 million this year.

Administration officials said they are still working on a capital budget for construction and road projects.
Carney’s proposal for the operating budget includes reducing total non-personnel discretionary spending among state agencies by about 4.5 percent. He also wants to raise the state employee cost share for health insurance, eliminate 200 vacant positions, and reduce spending lines for public schools, higher education, energy efficiency programs, and open space and farmland preservation.

“I’m concerned about the effect of all the cuts that we’ve had to make in this budget,” Carney said before publicly releasing the plan. “… This is a series of tough, difficult decisions that could have negative consequences.”

At the same time, Carney is proposing additional spending to meet enrollment growth in schools, with $25 million for new teachers. He also wants lawmakers to appropriate an additional $11.8 million to fully fund Medicaid, which already cost state taxpayers about $800 million a year. Health care costs for state employees and retirees amount to roughly another $800 million, Carney noted.

“Health care cost inflation, in my view, is the biggest challenge facing the country … and obviously a big cost driver on the state level as well,” he said.

Carney also is proposing $4.7 million in new spending to increase hazardous duty pay for prison guards and $2.3 million to hire 75 new correctional officers, along with $1.3 million for new equipment and training.
“I think it’s fair to say that there’s going to be more that will have to be done,” said Carney, whose proposal comes after an inmate uprising last month at Delaware’s maximum security prison, during which four Department of Correction staffers were taken hostage and one was killed.

The president of the Correctional Officers Association of Delaware has blasted state officials for ignoring chronic staffing shortages for years. COAD president Geoff Klopp has said inmates would not have been able to overpower correctional officers and take control of a building if there had been adequate staffing.
On the revenue side, Carney is proposing to raise corporate franchise taxes, personal income taxes, and tobacco taxes to generate about $193 million in additional available revenue.

“This is an exercise, quite frankly, in tough decisions,” Carney said.

Assuming lawmakers go along with the plan, the effects will be felt across a broad spectrum, including giant Fortune 500 companies, senior citizens, and local school districts.

Many companies incorporated in Delaware would see maximum franchise taxes increase from $180,000 to $200,000, along with the creation of a “second-tier” maximum tax at $250,000 for the largest corporations.
Individual income taxpayers would see itemized deductions eliminated, although the standard deductions for individuals and couples would be doubled. The state’s seven tax brackets would each increase by 0.2 to 0.4 percentage points, with the top rate increasing from 6.6 percent to 6.8 percent. The eligibility age for certain exclusions and credits for older citizens would gradually increase from 60 to 65.

A statewide senior property tax credit would be reduced from $500 to $400.

Carney also is proposing a $15 million reduction in school district and charter school operations. School districts also would see a $22 million cut in funding for certain educational programs but would be given the flexibility to raise a “match tax” without referenda to make up the difference.

Tobacco users also would pay more to indulge their habits, with cigarette taxes increasing by a dollar a pack to $2.60.

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