As Delaware lawmakers return to work, panel lowers state's official revenue forecast



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NEW CASTLE, Delaware — The panel that sets Delaware's official revenue forecast made life a little harder for legislative budget writers Monday, shaving tens of millions of dollar off their prior estimates.

Meeting for the first time since Democratic Gov. Jack Markell unveiled his fiscal 2016 budget proposal in January, the Delaware Economic and Financial Advisory Council lowered its revenue estimate for the current year by $39.4 million compared to its December estimate.

Most of the decline is attributed to lower estimates for abandoned property collections. But the panel also dropped its estimates for personal income taxes, bank franchise taxes, gross receipts taxes, lottery and gambling revenue, and cigarette taxes. Higher estimates for corporate franchise taxes were not enough to offset the declines. The council also lowered its estimate for fiscal 2016, which starts July 1, by about $7 million.

The General Assembly reconvenes Tuesday after taking several weeks off for budget committee hearings.

"It's a lot of money, and it will be difficult to make it up," said Senate Minority Leader Gary Simpson, R-Milford.

Markell's budget director, Ann Visalli, said lawmakers on the budget-writing Joint Finance Committee have a lot of work in front of them.

"I'll be in a listening mode ... I'm anxious to hear what their thoughts are," she said.

The latest declines in revenue estimates come after the council's December reduction of about $17 million off its previous estimate for the current year, and as a panel established by Markell continues a "structural review" of Delaware's revenue system. State official say state government relies too heavily on volatile revenue sources, such as lottery and gambling money and abandoned property collections that do not keep pace with or accurately reflect economic conditions. They note that 56 percent of state revenue comes from so-called "inelastic" sources, and only 44 percent from sources such as personal income and corporate income taxes that are more directly related to economic conditions.

"The trend in too many of our revenues is either negative or only slightly positive," said Secretary of State Jeffrey Bullock.

Meanwhile, a ruling by a federal judge regarding Delaware's system of collecting abandoned revenue raises even more concerns.

The judge last week refused to dismiss a lawsuit challenging the constitutional validity of Delaware's abandoned property collection system. One of the state's largest revenue sources, that system is expected to bring in more than half a billion dollars both this year and next year.

Abandoned property can include stocks and bonds, uncashed checks, unclaimed dividends, wages, refunds, and utility deposits. Partly because of Delaware's status as a hub of incorporation, abandoned property has become the state's third-largest revenue source.

But the abandoned property, or escheat system, has become a source of tension between the business world and a state that is the legal or corporate home to more than 1 million business entities, including more than 60 percent of Fortune 500 companies.

Corporations are chafing at Delaware's practice of estimating their abandoned property holdings when actual records are not available, then demanding millions of dollars in escheat payments. Last week's ruling may make corporations facing abandoned property audits more reluctant to enter into settlement negotiations with the state.

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