DELAWARE BUSINESS ROUNDTABLE RELEASES STATE FINANCES STUDY; PLANS TO HELP DEVELOP “GROWTH AGENDA” FOR DELAWARE
By Bob Perkins
The State of Delaware faces a structural budget challenge with multiple dimensions – a revenue portfolio that is not responsive to the economy, unsustainable expenditure growth and the need for more robust economic growth, according to an independent study released today by the Delaware Business Roundtable. The study projects that, absent policy changes, annual operating budget deficits will expand to over $600 million, or 11 percent of expenditures, by 2025.
Commissioned by the Roundtable, the study was conducted by Michael C. Genest and Brad D. Williams of Capitol Matrix Consulting, a leading economic consulting firm whose work focuses on a wide range of fiscal, economic and policy issues, particularly related to state government.
The study reviews the work of the DEFAC Advisory Council on Revenues, created by Governor Markell, noting that it provides a potential framework to construct a portfolio of revenues that will demonstrate better economic responsiveness and lower volatility than Delaware’s current portfolio. Successful implementation of pro-growth economic policies are an important way to improve state revenue growth by boosting income and consumer spending.
“Notwithstanding the strong headwinds of the recession, Delaware has begun to make economic progress, as a number of recent reports and data suggest,” said Mark Turner, President and CEO of WSFS and Chairman of the Delaware Business Roundtable. “However, there is much more that needs to be done, and it is essential that the business community play a significant role in helping to meet this challenge, particularly with regard to the creation of a growth agenda for Delaware.”
The study points out that because more robust economic growth is an important factor necessary to resolve Delaware’s structural budget challenge, a high priority should be given to policies that will boost, rather than hinder, economic growth and job creation. Given its relatively small size, talented workforce and solid higher education system, the state is uniquely positioned to identify and act on opportunities to build strategic alliances with the private sector and remove regulatory and workforce barriers to potential growth.
As a result, the Roundtable plans to collaborate with state, business and community leaders to assist in developing a growth agenda to increase capital investment and job creation statewide. The Roundtable has contracted with TIP Strategies, a leading strategic planning firm whose planning model combines rigorous data analysis with the latest thinking in economic development, workforce training and community-based principles.
With regard to state spending, the study by Capitol Matrix Consulting indicates that Delaware spends 23 percent of its economy on state and local government services, ranking it 7th highest in the nation, according to the U.S. Bureau of the Census. The state can make significant progress toward resolving future budget shortfalls by restraining spending growth over time in key areas of the budget, according to the study.
“The results of this independent review and the difficulty our elected officials faced in preparing a budget for this fiscal year clearly indicate that the structural budget challenge we face will require creative solutions and political courage,” said Robert W. Perkins, Roundtable Executive Director.
Specifically, the study identifies a number of areas where state expenditures are inconsistent with neighboring states or national averages and where policymakers should spend time further analyzing potential spending reductions. For example:
Corrections: The study notes that expenditures for corrections are significantly higher than the national average and that over the last two decades expenditures in this area have taken a growing share of Delaware’s operating budget. Delaware spends substantially more on a per-prisoner basis than the national average, and for this reason, the study suggests policymakers conduct a more detailed analysis of corrections expenditures to identify opportunities to reduce costs without jeopardizing public safety.
Public Welfare/Social Programs: The study suggests there may be opportunities to improve on Delaware’s federal shares in the Medicaid program and recommends a thorough analysis be conducted.
Education: From 2008 through 2014, while other states were cutting K-12 per-pupil funding by 4 percent, Delaware was increasing funding by 12 percent. Slowing the growth of spending over time would bring costs in line with the average of neighboring states. The study notes that while maintaining and expanding such spending is laudable, the budget impact is problematic.
Personnel Costs: The study recommends that Delaware consider reducing the size of its state and local government workforce over time, either through hiring freezes and attrition or by targeting specific programs for reduction or elimination. Delaware also could reduce spending by changing premium cost sharing ratios for healthcare coverage for state employees and retirees.
In 2009, the Delaware Business Roundtable worked with the Markell Administration to assist in developing the Government Performance Review (GPR) plan by offering loaned executives trained in Six Sigma and Total Quality Management (TQM) to work with cabinet secretaries and their staffs. A number of recommendations from the GPR plan were implemented, but there may be opportunities to review that report and identify additional budget savings. In addition, at the request of the General Assembly, the Pew Foundation is conducting a study to identify potential state spending reductions.
It also has been reported that the Governor’s Office is planning to create an expenditure committee to review state spending. The Roundtable looks forward to contributing ideas and resources to that committee if requested.
“Historically, the Roundtable has worked in partnership with state government, and we would like to continue that partnership in a meaningful way at this pivotal point in the state’s economic history,” Mr. Turner said.