Cigarette Tax Stabilizes Revenue

The General Assembly's decision to increase Delaware's cigarette tax earlier this year is helping prop up the state's shaky fiscal outlook...

NEW CASTLE, Del. - The General Assembly's decision to increase Delaware's cigarette tax earlier this year is helping prop up the state's shaky fiscal outlook, members of a revenue forecasting panel learned Monday.

The 60-cents-per-pack increase approved by lawmakers in June helped balance the budget for the current fiscal year with an additional $48.7 million in revenue and gave state officials an estimated $66 million More to work with for fiscal 2009.

The higher cigarette taxes also helped buffer the effect of decreases in personal and corporate income tax revenue estimates for the current and upcoming fiscal years that the Delaware Economic and Financial Advisory Council approved Monday.

The panel, which sets the official revenue pRedictions on which state budgets are built, also backed off from June estimates for revenue from bank franchise taxes, realty transfer taxes and gross receipts taxes on businesses.

The panel increased its estimates for corporate franchise and insurance taxes, but not enough to offset the declines in other categories, leaving the cigarette tax to fill in the gaps.

Including the new cigarette taxes, estimated revenue for the current fiscal year is $3.39 billion; $24.6 million higher than the June forecast that was approved before the cigarette tax passed. Without the higher cigarette tax, revenue estimates would have dropped by $24 million.

For fiscal 2009, which start July 1, the revenue estimate is up by about $42 million to $3.55 billion. Without the $66 million boost in estimated cigarette tax revenue, the number would have dropped by $24.5 million.

Officials attributed most of the downside pressure on revenues to the nationwide housing slump, which they said appears to be deeper and More long-lasting than they thought in June.

"What's happening nationally is filtering down to Delaware," said Sen. Nancy Cook, D-Kenton, co-chair of the legislature's budget-writing Joint Finance Committee.

"We're not saying it's disastrous, but we're not nearly as confident as we were," said Ken Lewis, chair of DEFAC's revenue subcommittee.

On the bright side, a revival in initial public offerings is boosting corporate franchise taxes, and the continued popularity of alternative business formations such as limited partnerships and liability companies is also proving healthy to the state's bottom line.

Officials are now awaiting September employment figures to get a better handle on the immediate outlook for Delaware's economy.

State budget director Jennifer Davis said Monday's figures dictate a cautious approach. She suggested that DEFAC, which is not scheduled to meet again until December, may want to squeeze in another meeting before then to give her a better idea of what revenues will be available as she fashions Gov. Ruth Ann Minner's proposed fiscal 2009 budget.




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