State treasurer visiting communities statewide to discuss finances
An antiquated system that relies heavily on “OPM” – that’s “Other People’s Money” – lies at the heart of Delaware’s ongoing annual budget issues.
That’s according to state treasurer Kenneth Simpler at a recent Greater Hockessin Area Development Association meeting, where Simpler paid a visit to talk state finances on a whistle stop tour of communities statewide.
According to Simpler, the state relies on OPMs for roughly 46 percent of its income yearly. And with the state also being the number one job provider in Delaware, much of its income tax revenue comes from the same people they’re paying those dollars to.
The one fundamental thing done each year to set the state’s operating budget, Simpler said, is not how it’s commonly done in other situations.
“It would make sense to say, ‘Hey, last year was $100, and inflation [went up] 3 percent, so now we need $103,’” Simpler said by way of example. “But no – the answer is: however much revenue we find. So, however much money flows in, that’s how much we spend.”
And how much money comes in, he added, has nothing to do with prioritizing needs during the budgetary process.
The state legislature’s annual balancing issues arise from basing projections on floating costs like income tax, abandoned property revenue, corporate income, and gross receipts, according to Simpler.
Details on the current and 2019 budgets can be found here.
“It’s a bunch of revenue sources, and they move around – the economy moves around,” Simpler said. “So whatever the economy throws off in a given year is what we say spend that year.”
Revenues are “raised” by eliminating funding for nonprofits and limiting cash for resources like volunteer fire companies, he added – the kind of budgeting that reflects a one-half of 1 percent “growth” in revenue over 2017.
He added that projections show as much as a 6 percent increase in revenues for 2019, but again, largely from cuts stemming from the 2016-17 budget cycle.
“Why would we run the railroad this way?” Simpler said. “Why wouldn’t we just say; ‘we have an average growth rate, it’s around 3 percent?’ God help us if we actually prepare ourselves – [New Castle County] has better fiscal practices than the state – that’s the reality.”
There is no simple mechanism in place, he added, that allows for squirreling away surplus dollars at bountiful times to offset things during the years when revenues are down.
“That’s not part of our constitutional framework,” he said. “That’s crazy.”
The reason that provision doesn’t exists, Simpler noted, is because no one has attempted to alter the process in the last 40 years.
“We’re running off of budget architecture built in 1978,” Simpler said.
Having a fund in place to offset inflationary costs during years when income projections fluctuate as much as 3 to 4 percent only makes good business sense, Simpler said.
“Being able to meet our service levels over time in a consistent, predictable manner – not up and down,” he said. “This simple matter of lack of financial certainty really does paralyze our organization down in Dover.”
Making those changes, Simpler said, would require a change in the state constitution.
“At a minimum, you would have to have some certainty every year around what it is we’re able to spend,” he said. “Otherwise, it’s chaos. And who wants more chaos?”
To read Simpler's newsletter that explains in detail the idea of a "Grand Bargain," click here.