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Economic Development

General Assembly must exercise ‘Power of the Purse’ responsibly

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Sam Waltz

Sam Waltz
Founding Publisher

It’s 50 years next month since Richard J. Fenno Jr. brought out his academic classic “The Power of the Purse,” which instructed a generation of political science graduate students on the realities of legislative politics.

I was one of those, reading Fenno just a few years after he published, memorializing his concept that the root of legislative power is invested in its ability to raise and spend money.

And, of course, given that the first objective of nearly every legislator is re-election, the questions every legislator must answer are, “With whom can I use taxpayer money to buy favor that wins me re-election? To whom can I stick the bill?”

Given Congress’s power to print money, generations of Congresses long ago elevated the answer to immoral proportions in refusing accountability, simply “kicking the can down the road.”

USDebtClock.org reports Congress has committed us at well over $150,000 in federal debt, per American household, and an additional almost $1 million per household in unfunded federal liabilities, just to pay for the goodies that Congress handed out to you and me yesterday to buy favor with us.

In Dover, and 49 other state capitals, they can’t simply print money.

As a result, 62 legislators who prepare to return to work in Dover next month are scratching themselves somewhere, wondering just how to resolve in the state’s $4 billion annual operating budget what may soon be a state spending and revenue-finding issue of near crisis proportions.

Delaware has attempted to leverage its advantages to become the lovable Godfather of States, extracting what I call “drive-by revenue” from every business large or small, just as the Godfather provided protection and collected a certain tribute, or vigorish, for the privilege.

I don’t fault that creativity. I applaud it. In the process, it’s given the state an extraordinary judiciary and the country a sensible systemic model of incorporations. And it’s saved us money.

That has allowed those who govern the State of Delaware to “export our tax burden,” that is, use our commercial highways (e.g., incorporations, courts) and our physical highways (e.g., Interstate 95, Del. 1, the Delaware Memorial Bridge) to collect net revenues from those who must pass through our state.

But it’s a fragile business, one to be approached cautiously, to avoid killing the goose that laid Delaware’s golden egg.

So what’s a state to do?

First, the legislature must disabuse itself of the notion that somewhere there’s a pot of gold, inside Delaware or out, that it can tap without causing pain to Delaware citizens and taxpayers. Some opportunities may yet exist, but, for the most part, those days seem in the rear view mirror.

Second, in the politics of confiscation (oops, I mean taxation) and redistribution, legislators must set aside the concept that the political classes can buy favor for friends (whether business, unions, state employees, the elderly, whoever) with taxpayer money.

Finally, generations of critics have told Delaware that its revenue sources are just too narrow.

This is not a campaign statement for these prospective taxes, but the state must begin to kill off its sacred cows and consider such as:

“¢ A State Real Estate Tax, an area where Delaware has huge room to increase and still retain advantages over neighboring states.

“¢ More User Fees, although intuition suggests that Delaware already has peaked on its tolling ceiling on I-95. The gas tax is an obvious one to increase.

Frankly, these are the kinds of things that Delaware’s business leaders are beginning to talk quietly about among themselves.

No one – certainly not me, or the DBT – would campaign for a state sales tax. However, it’s mission-critical that no cows are sacred as the state undertakes a thorough examination.

As well, too, Delaware already has a sales tax, but legislators keep it quiet. It’s called the Gross Receipts Tax, it applies to larger businesses. And, in order for Delaware to continue to lie to its out-of-state shoppers that we don’t have a sales tax, Delaware legislators criminalized disclosure of the Gross Receipts Tax on shopping receipts.

Instead of a Boscov’s, for example, showing it as a sales tax, which it does in its Pennsylvania stores, in Delaware it must pretend that it does not exist and bury in its overhead, raising its pricing if necessary, just to maintain the illusion of tax-free shopping in Delaware. The Attorney General has enforced that provision against Delaware businesses, at least one of which I know.

Ultimately, though, none of this should take the pressure off the Delaware General Assembly to curtail spending growth, and even cut back spending. It needs to explore a variety of strategies, one of which should be increased privatization of state services.

Finally, economic development – creating a healthy job-creating economy – is the key to solving Delaware’s fiscal issues. It’s “the rising tide that floats all ships!”

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