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CEOs: State cuts or $600M deficit by 2025

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An independent study released Wednesday by the Delaware Business Roundtable said Delaware faces major budget challenges in the upcoming year – unsustainable expenditures, a need for more robust growth and a revenue portfolio that is not responsive to the economy. Without policy changes, the study said, Delaware will have a budget deficit of $600 million by 2025.

The Delaware Business Roundtable is a non-partisan, volunteer consortium of CEOs whose companies collectively employ over 75,000 people in Delaware. After reviewing the work of the DEFAC Advisory Council on Revenues, the group suggested building a portfolio of revenues that will demonstrate lower volatility and better economic responsiveness than the state’s current portfolio.

“Notwithstanding the strong headwinds of the recession, Delaware has begun to make economic progress, as a number of recent reports and data suggest, said Roundtable Chairman Mark Turner, CEO of WSFS. “However, there is much more that needs to be done, and it is essential that the business community play a significant role in helping to meet this challenge, particularly with regard to the creation of a growth agenda for Delaware.”

The study said successful implementation of pro-growth economic policies are an important way to improve state revenue growth by boosting income and consumer spending. It said that, because more robust economic growth is an important factor necessary to resolve Delaware’s structural budget challenge, a high priority should be given to policies that will boost, rather than hinder, economic growth and job creation.

Given its relatively small size, talented workforce and solid higher education system, the state is uniquely positioned to identify and act on opportunities to build strategic alliances with the private sector and remove regulatory and workforce barriers to potential growth, the study said.

The roundtable plans to collaborate with state, business and community leaders to assist in developing a growth agenda to increase capital investment and job creation statewide. The roundtable has contracted with TIP Strategies, a strategic planning firm whose planning model combines rigorous data analysis with the latest thinking in economic development, workforce training and community-based principles.

The study said Delaware spends 23 percent of its economy on state and local government services, ranking it seventh-highest in the nation, according to the U.S. Bureau of the Census. The state can make significant progress toward resolving future budget shortfalls by restraining spending growth over time in key areas of the budget, according to the study.

“The results of this independent review and the difficulty our elected officials faced in preparing a budget for this fiscal year clearly indicate that the structural budget challenge we face will require creative solutions and political courage,” said Robert W. Perkins, the roundtable’s executive director.

The study identifies areas where state expenditures are inconsistent with neighboring states or national averages. It recommends policymakers spend time further analyzing potential spending reductions.

  • The Corrections Department: Expenditures for prisoners are significantly high than the national average, the study said. Delaware spends substantially more per prisoner, it said. The study suggested policymakers analyze the corrections expenditures to identify opportunities to reduce costs withouth jeopardizing public safety.
  • The study recommends a thorough analysis of public welfare and social programs to see if Delaware might gain a greater federal share for its Medicaid program.
  • While some other states were cutting per-pupil funding from 2008-2014, Delaware increased K-12 per-pupil funding by 12 percent, the study said. The study suggests slowing the growth of spending over time to bring costs in line with neighboring states’.
  • Delaware should consider reducing the size of its state and local government workforces over time, the study said. This could be accomplished through attrition, hiring freezes, targeting specific programs for reduction or elimination, or by changing premium cost-sharing ratios for state healthcare coverage.

In 2009, the Delaware Business Roundtable worked with the Markell Administration to assist in developing the Government Performance Review plan by offering loaned executives trained in Six Sigma and Total Quality Management to work with cabinet secretaries and their staffs. A number of recommendations from the GPR plan were implemented, but there may be opportunities to review that report and identify additional budget savings. In addition, at the request of the General Assembly, the Pew Foundation is conducting a study to identify potential state spending reductions.

It also has been reported that the Governor’s Office is planning to create an expenditure committee to review state spending. The Roundtable looks forward to contributing ideas and resources to that committee if requested.

“Historically, the roundtable has worked in partnership with state government, and we would like to continue that partnership in a meaningful way at this pivotal point in the state’s economic history,” Turner said.

The study was conducted by Michael C. Genest and Brad D. Williams of Capitol Matrix Consulting, an economic consulting firm whose work focuses on a wide range of fiscal, economic and policy issues, particularly related to state government.

DSCC statement about the Roundtable’s Report

WILMINGTON, DE (September 3, 2015) – The recent study commissioned by the Delaware Business Roundtable (DBRT), of which the Delaware State Chamber of Commerce (DSCC) is a long-time member, is consistent with the DSCC’s message over the past year that Delaware’s current revenue structure is not sustainable.

If the state’s economy is to be turned around, it is time for the General Assembly and the Administration to make the difficult budget decisions that have been postponed for years. The problems we are facing continue to grow exponentially. For example, last year the State Chamber supported the Governor’s proposal to have state employees contribute more towards their health care costs consistent with what has been necessary in the private sector. Furthermore, there are other reports including the report issued by the DEFAC Advisory Council on Revenues issued earlier this year that make it clear the state must realign Delaware’s revenue collection process if there is to be any hope of matching revenue with spending. This is problematic considering anticipated future state spending driven by a variety of demands including Medicaid costs and state pension obligations, among others.

The DBRT and its members are not offering “free advice” but have carefully commissioned and paid for a needed review of our fiscal situation. The Roundtable, the State Chamber, their members and their employees provide hundreds of millions of dollars in taxes and fees to the state as well as thousands of volunteer hours. This is the engine that drives Delaware’s economy. The Roundtable and the State Chamber were part of the coalition to keep GM and Chrysler in Delaware. Our members have suffered the consequences of those plants closing.

DSCC President Rich Heffron says, “As the State Chamber has repeated, we are not interested in planting stakes in the ground or pointing fingers. We are only interested in solving problems. Any comprehensive solution must be bipartisan in nature. We look forward to participating in any solution to find sustainable revenue sources and position the Delaware economy to move forward.”

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