- Associated Press - Monday, December 15, 2014

NEW CASTLE, Del. (AP) - Members of the panel that sets Delaware’s official revenue projections downgraded their estimate for the current year by about $17 million on Monday and announced the establishment of a task force that will conduct a structural review of Delaware’s current revenues, saying the state faces fundamental limitations that constrain its finances.

The review panel, which will begin meeting in January and submit a report in the spring, will examine a revenue system that officials suggested relies too heavily on “inelastic” and volatile revenue sources, such as lottery and gambling money and abandoned property collections, that do not keep pace with or accurately reflect economic conditions.

“That volatility creates a real challenge as we attempt to project over multiple years,” said Joshua Martin III, a former judge who chairs the Delaware Economic and Financial Advisory Council.

State officials noted that 56 percent of state revenue comes from inelastic sources, and only 44 percent from sources such as personal income and corporate income taxes that are more directly related to economic conditions.

Former DEFAC chairman Robert Byrd, a high-powered lobbyist with ties to the Democratic Party establishment, said the review is “long overdue.”

“It really needs to be done,” Byrd said at the conclusion of Monday’s meeting.

Options that the review panel might consider include a state sales tax, which likely would be a political nonstarter, and a progressive flat tax.

Monday’s projections for the current and upcoming fiscal years are the final estimates for this year and will be used by administration officials to fashion a proposed fiscal 2016 budget that Gov. Jack Markell will unveil in January.

The panel’s revenue estimate for fiscal 2016, which starts July 1, was basically flat, at $3.88 billion. That’s down from an estimated $3.92 billion for the current year.

Some of the major changes in this year’s estimate were attributed to higher refunds of abandoned property collected by the state and lower gross receipts taxes because of the decline in oil and gas prices.

“We’re really looking at how to manage our cost increases in an environment of relatively flat revenues,” said Markell budget director Ann Visalli, adding that an examination of the state’s underlying revenue structure is “critical.”

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