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Archive for November, 2010

Why No Outrage?

Article by Dr. John Stapleford, Director of CRI’s Center of Economic Policy and Analysis.

 

While much of the nation swung toward the Republicans in the recent election, here in Delaware congressional, state wide and local elections overwhelmingly favored Democrats. While the determinants of the congressional vote can be debated, Delaware voters have given Democrats increased control over the state legislature. The Democrat majority in the Delaware legislature not only remained, but is now so large that any bill can be passed without any negotiations with Republicans.

It is an interesting outcome and begs the question “why didn’t the voters of Delaware follow the national trend of expressing outrage at the current state of affairs?” This can be asked of both statewide and local races; and is evidenced not because Democrats won, rather because the current majority remained in power regardless of which party is happened to be. Surprisingly, the answers are straight-forward.

REASONS FOR LITTLE OUTRAGE

First, Delaware residents are not paying the real bill for the runaway state and local government spending that has occurred over the past decade. Why? Well, Delaware exports 44% of its state and local tax burden, ranking Delaware 5th among all the states in being able to successfully shift the state and local tax burden out of state.

In addition, the state of Delaware has also held taxes down by running up debt. Over the decade Delaware has gone from the middle of the pack on debt per capita to the 5th highest among all the states. State debt has doubled over the past seven years.

Not to mention the fact that local property taxes are kept low because public education is funded primarily at the state level. Delaware has the 3rd lowest property taxes as a percent of median home value among all the states.

Finally, the Delaware residents who vote are not the folks most impacted by the current economic hard times. While the recession has not hit Delaware as hard as many states, it has been very tough on groups whose voter participation rates are typically low: the poor, persons with less education, and the young. Counter to that, the voter participation rate for government employees is typically high. AFSCME and the teachers union have been very involved in this election cycle in Delaware.

WILL THE TIDE TURN?

Yes. During the next two years state and local taxes that impact Delaware residents and the Delaware economy are going to rise. The reasons for this are many. First, the Federal stimulus money dries up in 2011. Second, state and local governments in Delaware can’t shift operating expenses into debt much more without affecting the bond ratings.

Third, the majority party in control of the legislature is not naturally inclined to cut spending and the unions will work to make sure that the legislature does not modify pension benefits nor address the unfunded healthcare liability of over $5 billion.

Fourth, the over 65 resident population in Delaware is going to explode. These folks are on fixed incomes and perceive themselves to be hard pressed. They will be very upset with any state and local tax increases, and their voter participation rates are typically very high.
Finally, with the passage of the Dodd-Frank financial reform bill the door has been opened for the preemption of Delaware corporate law and a shift of governance to the national level with new requirements such as “say on pay” and jurisdictional changes. This would cripple the state’s ability to export Delaware’s tax burden.
So, there is a logic to the recent state and local elections in Delaware, and it will be interesting to watch over the next year and see how these issues are dealt with.

Dr. John E. Stapleford, Director
Center for Economic Policy and Analysis
Caesar Rodney Institute
johnstapleford@caesarrodney.org

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