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Delaware lawmakers approve $4.1 billion budget

July 3, 2017

DOVER, Del. (AP) — Delaware lawmakers have agreed on a $4.1 billion budget for the fiscal year that started Saturday, after Democratic and Republican leaders reached a compromise that included higher taxes on home sales, alcohol and tobacco, but held the line on income taxes.

After months of budget talks, failed last-minute deals and partisan finger-pointing, lawmakers agreed on a budget deal in an extraordinary session called Sunday by Democratic Gov. John Carney.

House lawmakers approved the budget 38-3 before sending it to the Senate, where it received final approval on a 16-4 vote shortly after midnight early Monday.

Carney signed the budget shortly after 1:15 a.m., admitting that it fell short of his expectations.

“I’m disappointed. I think we lost an opportunity to get a more sustainable revenue portfolio for the state, and we’ll have to continue to work with that,” he said.

After taking office in January, Carney called repeatedly for an equal mix of spending cuts and tax increases to put state government on a more sustainable fiscal path and close a gap that once approached $400 million between estimated revenue and expected spending needs for this year.

Republicans agreed with Carney’s proposal to raise corporate franchise taxes, paid mostly by out-of-state companies incorporated in Delaware. But they balked at raising income taxes without assurances that Democrats would take a hard look at spending practices.

The stalemate resulted in lawmakers, for the first time in modern history, ending the regular legislative session on Saturday without passing budget.

Lawmakers instead settled on an unprecedented short-term measure funding state government at fiscal 2017 levels for 72 hours, and Carney issued a proclamation calling lawmakers into an “extraordinary session” Sunday to address budget matters.

The budget compromise fell into place quickly Sunday after Democrats gave up their insistence on raising personal income taxes and Republicans agreed to drop demands for reforms to Delaware’s prevailing wage law, which sets pay scales — often driven by union wages — for laborers on public works projects. Republicans say the prevailing wage unnecessarily drives up taxpayer costs on government construction projects.

The budget vote came after hours of closed-door talks in which legislative leaders agreed to raise the state’s real estate transfer tax from 3 percent to 4 percent. While the state splits the current tax with counties, all of the additional money from the 1 percent increase will go into the state’s general fund. The move would generate an estimated $45 million for the state this year and about $71 million the following year.

Legislative leaders also agreed to hike taxes on alcoholic beverages and tobacco products, which will bring in about $17 million in additional revenue this year.

House lawmakers approved the real estate transfer tax increase on 31-9 vote with no debate. The measure cleared the Senate a short time later with the bare minimum 13 votes required. The alcohol and tobacco bills also were approved by narrow margins in both chambers.

The revenue package allowed the budget committee to rescind about $29 million in spending cuts it had previously approved. The committee also agreed to restore $37 million in funding for a grants package for nonprofit organizations, community groups and volunteer fire companies, a powerful political constituency in Delaware. The total grant appropriation, approved unanimously by both chambers, is 20 percent less than in fiscal 2017.

The Democratic-led budget committee’s decision last week to zero out spending for the grants package set off a political firestorm. Democrats accused Republicans of deliberately forcing them to make painful budget cuts. Republicans accused Democrats of using nonprofits and fire companies as political pawns in their effort to push Republicans into supporting an income tax increase.

The gamesmanship culminated when Democrats cobbled together a bill behind closed doors late Thursday night to simultaneously restore the grants funding and increase income taxes. Calling the maneuver a “sham” Republicans walked out of the chamber before a vote on the bill, which failed without GOP support.

In addition to the operating budget and grants package, lawmakers approved a capital budget that includes more than $317 million in state funding for transportation projects and $272 million for non-transportation construction projects.

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