The Budget Battle in the New Year

So the Delaware Economic & Financial Advisory Council (DEFAC) is projecting a budget surplus for Delaware next year.

“State government is now expected to end the current fiscal year with $31.2 million in additional revenue and an additional $87.6 million during the next fiscal year, according to the latest projections from the Delaware Economic and Financial Advisory Council.   […] The December estimates are what Delaware’s governors use to develop their budget proposals to the General Assembly, which typically enacts a spending plan by June 30.  If the council’s latest estimates hold, state lawmakers will have an extra 2.1 percent to play with as they craft a 2018-2019 spending plan worth roughly $4.3 billion.”

Since the December DEFAC budget estimate is what Governor Carney will use in crafting his proposed budget that will be submitted to the General Assembly in January, this forecast gives him a little more breathing room, and indeed, it is better to have a surplus of $118.8 million than a deficit of $386 million when writing a budget proposal.

Now, how to spend that money?  The obvious answer is to reverse some of the painful cuts from last year.  But in what I am sure will be a gubernatorial showdown in the future, Attorney General Matt Denn and State Treasurer Ken Simpler have other ideas.

Attorney General Denn and the Coalition for Delaware’s Kids is calling on the General Assembly to use some of the money to aid Delaware’s poorest and most vulnerable children.  Matt Denn: “As we move into the 2018 legislative session, let’s focus on the facts: the Coalition for Delaware’s Kids proposal to spend $55 million in windfall tax revenues from last year on at-risk kids is unrelated to the ups and downs of the state’s revenue forecasts. This is not money that is subject to forecasting changes or that the state ‘doesn’t already have.’ It was already collected last year, and the Coalition is (a) urging that it be spent conservatively over a four-year period rather than all at once, and (b) that it be focused on lifting up at-risk kids.”

The coalition would use spend the money to 1) expand the Early Childhood Assistance Program, which enrolls children ages 3 and 4 in pre-kindergarten; 2) target children in high-poverty elementary schools through grants that would allow them to hire additional teachers, counselors or staff (the plan proposes assisting 10 elementary schools statewide that have more than 70 percent of students living below the poverty line through individual grants of $250,000 each year); 3) offer more after-school and summer programs for children in low-income neighborhoods by expanding the competitive grant program in the state (this proposal calls for targeting children in low-income neighborhoods and specifically, students ages 12 and older); and 4) improve rehabilitation and re-entry programs for kids leaving juvenile correctional facilities (the proposal calls for getting grants into the hands of non-profits that use cognitive behavioral therapy programs and family-centered programs to reach kids – especially when 80 percent of kids serving time commit new crimes after they’re released, according to the coalition.  The coalition also proposes to open a recovery high school for children recovering from addiction and start a data-sharing system that would help state agencies identify at-risk kids earlier in life and get them the resources they need.

Treasurer Simpler, while taking generally about a grand bargain in editorials and news articles lately, has another idea.   But first, as a digression, Mr. Simpler should know that the term “grand bargain” brings back frightening memories of the 2011 federal budget and debt ceiling battle where the evil Republicans threatened to breach the debt ceiling and crash the entire global economy, for the second time in three years, unless they got exactly what they wanted.  Due to the dire situation, President Obama and Speaker Boehner actually contemplated a deal where the earned benefits that citizens paid for their entire lives were going to be taken away or cut in order to placate the destructive Republicans and further enrich the wealthy. It was Obama’s worst moment of his Presidency.  Literally, they were saying, give us your Social Security or we will crash the economy!   So Ken, don’t use that term again if you actually want to attract Democratic, or American, support for your ideas.   Thank you.

Moving on, Simpler does have a reasonable idea:

“The “Rainy Day Fund” has never been tapped, not once.  While oft-cited as a means to receive a better credit rating on our debt, even the agencies that do the ratings are puzzled by the fund’s purpose.  Rather than use the Budget Reserve Account to smooth over periods of economic hardship, policymakers have triaged financial shortfalls with a mix of ill-timed and untargeted cuts together with an assortment of unpredictable revenue enhancements.  While these types of actions are required by our current fiscal controls to balance the budget, they are the antithesis of the actions that the state should be taking in a recessionary environment. When the private sector is tanking, the public sector should be providing balance and stabilization, not contracting and exacerbating the decline.

That is positively Keynesian. It is what President Obama did to prevent the Great Recession from turning into a Great Depression. And he was trashed for it by Republicans at the time, who preferred austerity as a plan to cut spending. I am glad that Treasurer Simpler realizes the folly of Republican economic ideas. Welcome aboard sir.

Conversely, when the economy is expanding rapidly, government should be proceeding at a deliberate pace and harvesting part of that revenue growth for the next cyclical decline. A new Budget Stabilization Fund would have the clear purpose of leveling out the peaks and valleys in our income streams and would be funded and drawn down with regularity as our economy expands and contracts. To be clear, these reforms alone will not fix our policy challenges in healthcare, education, safety and infrastructure. They will, however, provide the certainty and clarity to our annual budgeting process that allows policymakers to study these issues in greater depth, analyze our resource allocation with more care and develop benchmarks for both setting expectations and measuring results.

Well, that last sentence started to become Republican political gobbledygook, with the benchmark and measuring results talk. But I have absolutely no problem establishing an account that banks money during the good times to smooth out budget cuts during the bad times. Makes sense. We should be using a Rainy Day fund on rainy days. If you want a separate fund that is a savings account that is never spent to make the bond market happy, fine, but call it that, not “Rainy Day Fund.” But, if the Treasurer wants to negotiate a bargain to address our structural budgetary issues, let’s start with this: Let’s restore the cuts to education and healthcare we made last year, while the wealthy were not asked to even sacrificed at all.

So here is how I would proceed. Step 1: Restore the cuts. Step 2: Establish the Simpler Stabilization Account. Step 3: Pass a new tax structure that includes two new tax brackets at higher rates above $150,000.00. Step 4: Make a downpayment on Denn’s Coalition ideas. Step 5: Analyze the rest of the budget for benchmarks/results/waste/redundancy, etc.

Delaware politics from a liberal, progressive and Democratic perspective. Keep Delaware Blue.

6 comments on “The Budget Battle in the New Year

  1. The Old ScoutMH McGrath

    Some ideas: 1. Savings – Reform the school system arrangements for construction, supplies and materials, to be purchased statewide and uniformly – not by 21 separate systems. Delaware is no more than a medium sized school system in toatality. 2. Repair our infrastructure – bridges, broadband statewide with fiber cabling to every school and community access, fix highways (NO NEW ROADS), commuter rail to Dover and Green Infrastructure (farmland preservation and open space); 3. Solve the homelessness problem – comprehensive housing, training, medical and job support.

  2. It the past, Delaware always tapped into the Transportation Trust Fund, instead of the rainy day fund. Thank goodness they stopped that practice, just this year.

    “Pass a new tax structure that includes two new tax brackets at higher rates above $150,000.00.” Typical democratic TAX AND SPEND. Typical Delaware Dem!
    And John Kowalko, has already sponsored a bill to raise rates on those earning $125k & $250k. So come up with your own idea.

    This is an excellent idea:
    1. Savings – Reform the school system arrangements for construction, supplies and materials, to be purchased statewide and uniformly – not by 21 separate systems. Delaware is no more than a medium sized school system in totality.

  3. cassandram

    So the first thing I want on the Simpler proposal is some fact checking. I’d like some evidence that the ratings agencies are confused by our rainy day fund. I just looked at the last S&P report and that rainy day fund was noted as a significant strength. I’m not quite ready to just accept all of these assumptions.

    But thinking about this plan, what is difficult here is that the central idea is that “spending controls” is a signature problem with Delaware’s budgets. Simpler’s plan would trade some revenue enhancements (no commitment to what that might be) with a plan to make sure that spending does not expand to meet the new revenue. This strikes me as very misguided. Over the past decade, Delaware has been specifically cutting back spending pretty much across the board. Increases to the budget are mainly medical costs and inflation.There have been significant cuts to Education and State workers have given back a serious percentage of their pay. There’s more, of course. Some expansion of the budget when there are more revenues should be expected to return some of these programs and salaries back to some reasonable level.

    An inadequate budget — and one that has counted on state workers to help finance filling the budget hole for a long time — is not a good baseline. This is what Simpler looks to codify. Let’s keep breaking the government, let’s keep underfunding essential programs and make no commitment to fix what has been broken in the name of a balanced budget. This is not a process that gets legislators and the executive to think through long term priorities and then work to achieve them.

    If growth in Delaware is going to be sluggish, them maybe it is time for more formal multi-year budgeting process. Take the long term budget forecasts and create 2-5 year budgets that think about a broader horizon. Force a discussion of long term priorities, rather than the (what looks like) chaos to get a budget, any budget each year. Be able to talk about revenues over a longer term for long term goals and give the State some breathing room to try to grow and manage itself.

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  5. Point of Order

    It needs to a lot closer to June 30 for me to believe anything Ken Simpler says, including the day of the week. What he is doing is trying to forestall a Democratic challenger in a year that may see major losses by the Republicans. He is NOT trying to reach across the isle, this is the first half of a bait and switch.

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