Jonathan Starkey

The News Journal

Corporate taxes expected to be less than projected

State tax collections dropped $40 million below expectations, according to an advisory panel that delivered the latest projections Monday that could cause more trouble for Gov. Jack Markell as he seeks support for multiple tax increases and his broader $3.8 billion budget plan.

The Delaware Economic and Financial Advisory Council projected Monday that current-year revenues will fall $107 million from a previous projection in December, mainly on less corporate income tax collections. Tax receipts are expected to rise $67 million next year, but it won't be enough to overcome two-year decreases in abandoned property collections, gross receipts taxes and the state's share of sagging casino revenue.

That leaves little cash for lawmakers to use as they attempt to balance the budget for the fiscal year that begins July 1.

Markell's budget also relies on higher taxes paid to form a corporation in Delaware, and on using $40 million that would normally fund transportation projects to cover health care and public education.

The governor wants to replace the roadway money with a 10-cent increase in Delaware's gas tax and he's proposing a separate new tax on property owners' annual bills to pay for waterway cleanup. But even Democratic leaders in the General Assembly are opposing the plans. House Majority Leader Valerie Longhurst, D-Bear, said lawmakers need a Plan B, predicting the Democratic-controlled General Assembly will not sign off on Markell's new taxes.

"We can't keep wasting our time trying to sell the gas tax and the water tax when it's not going to happen," Longhurst said. "We need an alternative and we need it sooner rather than later."

Ann Visalli, director of Markell's Office of Management and Budget, said the administration "will work with the Joint Finance Committee over the next couple months" as the budget-writing committee attempts to balance the state's next budget. Visalli said she will also talk to state agency heads about finding savings in the current budget year.

"It presents a challenge, but I'm sure we'll be able to come up with some options," Visalli said.

Transportation Secretary Shailen Bhatt could not predict Monday whether the lower revenue projections would alter lawmakers' views on the proposed gas tax hike. "It wasn't an easy sell before," Bhatt said. "This is just something else to keep in perspective."

Markell has warned lawmakers that opposing the gas tax would translate into delays to critical transportation projects, including road and bridge improvements, and the jobs that would come with that spending. And Bhatt said that delaying maintenance projects could come with an even greater cost in the future.

Senate Minority Leader Gary Simpson said Republicans remain opposed to Markell's proposed tax increases, including higher corporate formation taxes that won't have a great impact on Delawareans and have broader support in the General Assembly.

Simpson, who says lawmakers should look for budget cuts, predicted that the lower revenue forecast might pressure some on-the-fence Democrats to support the tax hikes to prevent the budget problems from growing.

"They may feel like now that they're forced into it," Simpson said. "If the governor can't balance the budget without the tax increases, they may feel an allegiance to the governor to bail him out."

Lawmakers will receive updated revenue projections in April, May and June before they must vote on next year's budget.

Contact Jonathan Starkey at (302) 983-6756, on Twitter @jwstarkey or at jstarkey@delawareonline.com.