The Morning After

Filed in National by on March 20, 2009

March 19, 2009 will forever be remembered as the date that Delaware’s Gilded Age officially ended. An age that was literally ‘built on a house of (credit) cards’ is no more. The same institutions that buttressed Delaware’s financial strength, compliments of the usurious interest rates that Delaware had legalized, imploded and helped lead what in retrospect was an inevitable meltdown, not just for Delaware, but for the global economy.

Gov. Jack Markell is left with the task of cleaning up the immediate carnage and developing a vision for the state’s future and a plan to execute that vision going forward.

Let’s talk first about the carnage. Many of ‘bulo’s friends, both on this board and in state government, are hurting deeply today. Read their emotional messages and try to understand just how deeply this cuts. This hurts profoundly, and will continue to hurt. This community can do its part to let these friends know that everyone is in this together, as ‘bulo considers this part of this community’s mission.

Looking at gimlet-eyed reality, the Governor was faced with many choices, none of them easy ones. ‘Bulo feels that he has made the best of an impossible situation, and that those gleefully looking to make partisan hay on this should be ashamed. By law, the Governor has to propose, and the General Assembly has to enact, a balanced budget.  

‘Bulo had previously criticized candidate John Carney and the General Assembly for ‘kicking the can’ down the road last year when lots of sleight-of-hand was used to avoid making tough decisions despite the abyss staring them in the face. Alleged Governor Ruth Ann Minner confirmed ‘bulo’s diagnosis by not even deigning to submit a balanced budget for FY ’10, as was her statutory mandate. No doubt writing a vanity chronicle of the triumphant Ruth Ann Years can be too time-consuming to actually do your job, even if some staff hack is doing the actual writing.

Back to the budget. Predictably, all of the wounded parties are howling. AFSCME, the horsemen looking to preserve their precious and unwarranted monopoly, big business screaming about corporate tax hikes, people objecting to the PIT increases. Most of that howling reflects real pain and is justified, or at least reflects people doing the lobbying jobs for which they are paid.

But here’s where the rubber meets the road. Any change to the formula, for example, any relief from the pay cuts, service cuts, or tax hikes will have to be balanced somehow. And that’s assuming that the DEFAC numbers stabilize, and that the projected deficit remains at $750 million. So, what would you do? And, if you increase revenue, what would you restore? And if you decrease revenue, what would you cut? Please be specific and think out your ideas, please don’t resort to boilerplate talking points, like ‘cut wasteful spending’, without putting some meat on the bones. Some of you will remember that, when first elected, then-Gov.-Elect Markell reached out for suggestions from everyone, especially state employees, and has received hundreds of ideas for making government more efficient. ‘Bulo himself submitted a couple. So, the Governor is trying to ‘cut wasteful spending’.  ‘Bulo will be watching closely to see which of these ideas have been incorporated into the plan, and so should you. ‘Bulo would also like to see the Governor release all of the specific suggestions that he is incorporating into his proposal.

‘Bulo proposes that the State begin to reverse the consolidation of tax brackets that first began under Pierre ‘Call Me Pete, and I’ll call you Joe Six-Pack’ duPont. If you go back to 1976, when duPont was first elected, there were a series of income brackets between $60,000 and those registering on the Oligarchic Seismograph.  Those were folded together over a 20-plus year span to the point where, today, those making $60K annually pay the same percentage of PIT as the Greenville aristocracy. It was inequitable, but few complained b/c the State was rolling in dough, and few felt overtaxed. Gov. Markell talks about proportionality in sharing the sacrifice, but ‘bulo believes that those who have benefited disproportionately from a less progressive tax code, not to mention usurious interest rates which made many of them undeservedly wealthy, should now have to pay the piper. It is not class warfare, it is basic fairness.

In terms of Markell’s vision for the future and plans to implement said vision, ‘Bulo is optimistic. Why can’t Delaware be the Green Incubator of the East Coast? That appears to be one of the cornerstones of the vision, and he is bringing in a Silicon Valley whiz-kid to help carry it out. This could be for Delaware what the chemical industry was, and what the banking industry was, the linchpin to Delaware’s ongoing job creation and business success, but also a key component in building Delaware’s identity as a state with a vision and the ability to confidently make that vision a reality. Oh, and a vision which paints the State as both doing well and doing good. 

There are many pitfalls to all of this, and ‘bulo plans to write another piece soon on the political and other minefields awaiting Markell as he tries to get his proposals through the General Assembly. For now, strong coffee and a breakfast burrito beckon the Beast Who Slumbers…

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  1. Bulo would ruin our economy. When Pete DuPont came in we had a top rate of 19.x %. We got more revenue by cutting our rates. It isn’t progressive to hinder progress. That is what you are proposing.

    A 1 percentage point increase on the amount above 60K won’t kill you. The key to me would be to sunset the increase for 3 years.

    I think that you are right when it comes to a wait and see attitude about real reform. We need specific reforms. I believe it will come.

  2. anon says:

    “…those gleefully looking to make partisan hay on this should be ashamed.”

    That line really needed a link.

    Thanks for the excellent post, ‘Bulo. I knew Delaware’s tax brackets were oddly flat, but I wasn’t aware that traced back to Champagne Pete. I should have guessed.

  3. pandora says:

    Talk about not putting meat on the bone, anon.

  4. After ‘bulo read anon’s link, he has a headache. Maybe it was the strong coffee…

    Seriously, that stuff is unreadable.

  5. jason330 says:

    Bulo would ruin our economy. When Pete DuPont came in we had a top rate of 19.x %. We got more revenue by cutting our rates.

    Idiot.

    Now then…

    Gov. Markell talks about proportionality in sharing the sacrifice, but ‘bulo believes that those who have benefited disproportionately from a less progressive tax code, not to mention usurious interest rates which made many of them undeservedly wealthy, should now have to pay the piper. It is not class warfare, it is basic fairness.

    I hope our many readers in leg hall have their ears on today.

  6. Unstable Isotope says:

    So far a lot of reaction has been how dare we tax rich people. I don’t think that’s going to fly with a lot of lower income people suffering. Misery loves company.

  7. LaNuit says:

    A little overdramatic in the beginning but overall, reasonable and good.

  8. BL says:

    The governor is trying to “‘cut wasteful spending’” and the best he could do is cut the salaries of state workers?

    Now there’s a great message!

  9. BL says:

    BTW, I love how our enlightened, liberal President mocked and belittled special needs children last night on Leno. Real class act!

    Come on, let’s hear the spin!

  10. Dramatic is good. It adds a little spice. It is like my saying tax cuts will save the world as opposed to saying foreign aid increases proposed by the Obama administration will not address the fundamental problem affecting the third world which is high marginal tax rates. You can make the argument later, but get the juices flowing first.

    To BL’s point, I am hoping there will be fundamental reform. So far we don’t have it but it isn’t over yet. In the short run they went for employee salaries because that is where the money is.

  11. Unstable Isotope says:

    I think what Obama said was a mistake, but not that big of a deal. It’s not like he shot someone in the face.

  12. R Smitty says:

    o far a lot of reaction has been how dare we tax rich people.

    A household income of > $60k is hardly rich in today’s world. If I recall something I read correctly, a $60k household income is considered a low-to-mid middle class income in today’s economy.

    when duPont was first elected, there were a series of income brackets between $60,000 and those registering on the Oligarchic Seismograph…
    Are you saying that this $60k line was defined/drawn in 1976? If so, then I think continuing to refer to that as the floor-line is the same problem of AMT. It was never anchored to an inflation adjuster.

  13. Another Mike says:

    “In the short run they went for employee salaries because that is where the money is.”

    Not if you ever saw my wife’s paycheck.

    By the way, are members of the General Assembly included in the cut? How about cabinet secretaries and the gov his own self? I sent an email to his office yesterday, but no reply as of yet.

  14. R Smitty says:

    BTW, I love how our enlightened, liberal President mocked and belittled special needs children last night on Leno. Real class act!
    Not wanting to derail this thread’s topic, but any attack on Obama’s seriously brain-dead comment last night is a shallow point to make. What he did was dumb, but in my mind fueled by a brain-dead moment. Just like his predecessors, most, if not all, comments on that same level are fleeting moments of not thinking it through and saying something that in no way reflects the character of the person. What it reflects is the years-upon-years of conditioning people of our age have had of knee-jerk comments smashing up against way over-zealous PC police.

    Get the eff over it. It’s a shallow argument that is a waste of energy.

  15. Smitty: Clearly $60K now is not what it was back in the day. No, ‘bulo was calling attention to the fact that the so-called top bracket begins at $60K and continues to presumably infinity. Because it’s so clearly inequitable and, as you pointed out, time has made it more inequitable, it should be changed.

    And, the merging of the brackets was gradual, it wasn’t done all at once. The General Assembly had a classic way to split the baby: For the D’s, increase the floor below which no minimum tax would be collected and, for the R’s, bracket shrinkage. It took place during the administrations of duPont, Castle and Carper, and that’s how long it took to make $60K the beginning of the so-called top bracket.

  16. R Smitty says:

    Well, maybe that’ll be something we get out of the GA, then, an addressing of these brackets.

    Does this have anything to do with why we have no reciprocal agreement with neighboring states?

  17. Another Mike: Everybody is included, no exemptions for non-merit positions. Markell made it clear that that holds true for him and members of his administration.

  18. Susan Regis Collins says:

    I’d like to say something pertinent, however, I am baffled by the ‘gaming’ proposal(s) as even part of the ‘cure’.

    I would like to know what GA members are gonna kick in: street funds? pay cuts? loss of vacation time?

    May I be so bold as to suggest all three? 😉

  19. Assuming the cuts pass as proposed, legislators will experience the same cuts as everyone else. They don’t get vacation time per se.

    The ‘street funds’ are interesting. Each legislator has $250,000 annually to primarily fund street projects on state-maintained roads. Not state roads like any of the numbered routes, but mostly suburban streets in their districts. The funds can be used for other purposes, like drainage projects (usually through the applicable Conservation District), and many city legislators use the funds for sidewalk repair and tree removal from right-of-way. The funds are actually administered through DELDOT, and, because of past misdeeds, the scope of things for which the funds may be used has shrunk significantly.

    It is possible, probably likely, that those funds will be reduced, but that only means that suburban streets in need of repair will get worse before they are repaired. DELDOT evaluates each street annually, and assigns a number grade to the street. The lower the score, the worse shape it’s in. For the most part, the funds are currently going to the streets that need it most.

  20. jason330 says:

    $60k for the top bracket.

    That means we are within spitting distance of Steve Forbes’ flat tax nirvana.

  21. Unstable Isotope says:

    Yes, the tax increase is quite small and not very progressive.

  22. I agree with Bulo that street funds being cut would just mean that either needed projects wait longer or local taxes go up to achieve them. That is not some wasteful pot of money going to legislator’s pockets. It is community money of last resort. When certain needs are being ignored it is the court of last resort for citizens to be heard by government to get those street lights in a dangerous neighborhood or a traffic light at a dangerous intersection.

    They are the only place where the people can by pass the very powerful bureaucracy.

  23. Keeper says:

    Cut the Needle Exchange Program in the city. Talk about wasteful spending?

  24. a. price says:

    yeah, let’s let everyone get AIDS, than we can spend more money on their medical care! twit

  25. anon says:

    Bad argument, a…. People who are against needle exchanges are also against medical care for the indigent. Well, maybe for the “deserving” indigent.

  26. anon says:

    The only people who get state paychecks who won’t be affected by the pay cuts are members of the judiciary. Though I hope they’ll join in in solidarity. (Hah!)

  27. Evolves says:

    The street fund should go, for at least a year. 250K per legislator equals almost 17 MILLION dollars. You can’t tell me that there is 17 millions dollars of necessary projects happening in every district. In my district, that money is wasted on bogus crap. That 17M could reduce the need to cut State salaries by 8%. It would get it closer to about 6%. Would you sacrifice your street to help a state employee keep their house?

  28. a. price says:

    depends on the color of the district (red/blue) and whether or no that street had a gate with a guard at the top of it..
    however, people ARE paid to maintain the streets

  29. Evolves: Eliminating the ‘street funds’ will put a serious dent in infrastructure improvement. And it will cost jobs in the construction trades as well.

    If you want to take the fund out of the legislators’ hands and give it exclusively to DELDOT, OK. If you want to reduce it some, OK.

    But keep in mind that these are not General Funds, but rather Bond Bill funds. They must be used for capital projects, and are not transferable to the operating budget. And also keep in mind that substandard roads have costs for constituents as well. Although they might help the body shop business…