Posted: Feb. 5, 2003
By Celia Cohen
Grapevine Political Writer
If you believe the tax system in Delaware is
bad, don't even think about going somewhere else.
Governing magazine, a nonpartisan,
earnestly-written publication, concluded that no other state handles
taxes better than Delaware -- a finding it reported in its February
edition after a yearlong study it called "The Way We Tax."
In fact, the report was so favorable to
Delaware that Finance Secretary David W. Singleton was moved to
quip, "I wrote it."
Still, the Governing analysis,
uplifting as it was here, does nothing to hide why the magazine
undertook its study when it did, the reason being that all 50 states
are struggling in bleak economic times. It hit the newsstands just
as the National Conference of State Legislatures released a survey
showing that the states collectively are experiencing their most
serious budget crisis since World War II in a downturn that
continues to worsen.
"State budgets are under siege," the
legislative conference said in its survey. "The faltering national
economy, declines in the stock market, contractions in the
manufacturing and high-tech sectors and soaring health costs have
combined to undermine the stability of state budgets."
Here at home, Gov. Ruth Ann Minner, a
first-term Democrat, was forced in her budget address last week to
propose a package of $155 million in cuts and $145 million in tax
and fee hikes to finance a $2.4 billion spending plan for Fiscal
Year 2004, which begins July 1. A budget bill will be drafted over
the next several months by the legislature and sent to the governor
The message from Governing essentially
was, as grim as the states' finances are, Delaware is in a better
situation that others to cope.
It was an unusually positive assessment for a
state more accustomed to bashing for its taxation -- primarily for
the reliance on the corporate revenues that accrue here. They arise
from the come-hither incorporation provisions of a century ago and
the business law set by the internationally-known Court of Chancery,
as well as the 1981 banking law that enticed the credit-card
As recently as last summer, for example, the
New Republic magazine printed a cover story with a blaring
headline: "Rogue State: The Case Against Delaware." It savaged
Delaware as "a rapacious parasite state with a long history of . . .
The story was so scathing that U.S. Rep.
Michael N. Castle, a six-term Republican who is also a former
governor, felt honor-bound to appear on CNN's Crossfire to
defend his state.
Governing acknowledged the populist
view of the state -- "it's inevitable that Delaware is sometimes
portrayed as a buccaneer on the high seas of state finance," it
wrote -- but went beyond it.
"This is a carefully managed fiscal
enterprise," the report said.
State officials will take it. "I'm proud, but
I'm not surprised," said state Rep. Deborah D. Hudson, a Republican
who chairs the Revenue & Finance Committee in the House of
Representatives. "Thank heavens we had the visionaries who put the
incorporation laws and the Financial Center Development Act in
place. It's all in the past, and we're reaping the rewards."
The magazine rated the states in three areas:
adequacy of revenue, fairness to taxpayers and management of the
system. It gave each state from one to four stars in each category.
Delaware was the only state to receive two
four-star ratings -- in adequacy and management. It had three stars
Only nine other states were awarded even a
single four-star rating: Florida, Hawaii, Michigan, Minnesota,
Missouri, New Mexico, North Dakota, Washington and Wyoming.
Nevada came in dead last with a single star in
all areas. Alabama and Tennessee were given one star in two of the
categories and two stars in a third. While Governing is known
for its restraint, it did not pull its punch with Nevada, writing,
"There's something out of whack in its tax system."
The report is available at the
www.governing.com Web site.
Delaware particularly was praised for the
Delaware Economic & Financial Advisory Council, better known as
DEFAC, the panel of academics, government officials and business
leaders charged with projecting what the state's revenues will be.
"Whatever happens to revenues, Delaware's
government will be better positioned than most to know about it in
advance," Governing wrote.
"My God! I love it," said DEFAC Chairman
Robert L. Byrd. The magazine article amounted to a sort of
vindication for Byrd, a gubernatorial appointee who has taken some
heat for making his living as one of the state's premier lobbyists
while running DEFAC.
If there is any downside to the state's
competence, it may be that it lulled Delaware into a false sense of
security. "We took for granted our solid [revenue] flow," Hudson
said. "We were so successful, we were able to overspend, so it's
good to slow down now."
The upside is that Delaware is experiencing
what Hudson called "a little pinch," not a crisis. As it turns out,
that view is the same whether it is from inside the state, like
Hudson's, or outside the state, like Governing's.
"From a distance, Delaware may look like it's
wearing a pirate's hat," the magazine concluded, "but from the
inside, the headgear bears a closer resemblance to a green
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