Governor's Fiscal Year 2011 Recommended Operating Budget and Capital Improvements Act

Thank you. I want to start by thanking Ann Visalli, Director of the Office of Management and Budget and her staff at OMB for all of their hard work putting this budget together. In terms of the OMB staff, I want to make special mention of Brian Maxwell, Director of Budget Development and Administration, and Meaghan Brennan, Deputy Director of Budget Development and Administration. I will turn it over to Ann and her team in a few minutes to talk about some of the specifics in this budget but want to give some overall remarks.

As I talked about in the State of the State last week, these are tough times both across the country and here in Delaware. The national unemployment rate remains at 10 percent, and at least 48 states have significant budget shortfalls, meaning they do not have enough revenue to pay for the services their citizens have come to expect from their government.

While we made progress meeting these challenges last year, Delaware is not immune from the budget and economic forces affecting our nation, and significant challenges remain.

This is a challenging year for three reasons. First, the revenues DEFAC projected to be available back in June of 2009 have fallen off, so we have less money than we thought we would. Specifically, Delaware is collecting less in revenues in almost every area -- personal, corporate, gross receipts - as the national economy continues to dampen income and earnings.

Second, the federal stimulus money that was very helpful last year has been significantly reduced. Indeed, federal stimulus money helped Delaware provide healthcare for families under the Medicaid program and funds for our schools, but we have $110 million less of it this year.

Finally, just like any business or your budgets at home, certain things cost more than they did last year. For example, the cost of healthcare continues to rise, which drives up the cost of our employee healthcare plans, our prison healthcare costs and the Medicaid program.

When you combine these three factors with the reality that there is a greater demand on state government services in these tough times - enrollment in public schools is up; Medicaid enrollments grow as unemployment increases - it presents significant challenges for our State. While the challenges before us were not as significant as last year's historic shortfall, they are real.

Last year, states across our country failed to balance their budgets in time. Delaware met its obligations, and we were rewarded for the fiscally responsible manner in which we accomplished that task. The three ratings agencies reaffirmed our AAA bond rating, in part because we only appropriated 98 percent of our anticipated revenues and maintained our rainy day fund.

The budget we present today is both balanced and responsible. It makes the cuts necessary to make our government more efficient. It maintains fiscal responsibility. It focuses education resources in the classroom, while demanding efficiencies in the backroom office functions of our school districts. It preserves other core functions, such as State Police troop strength and healthcare for those vulnerable families who need it. And, it funds those priorities that will help create jobs and grow our State's economy.

What does it mean to be fiscally responsible? This budget only recommends appropriating 98 percent of our projected revenues. This budget proposes we maintain our budget reserve account, and we also fully meet our pension obligations.

This last issue is a point often lost. In Delaware, we have and will again fully fund our pension liabilities. This is not case in all other states. For example, Illinois's pension plan is underfunded by $80 billion. You, your co-workers and state employees who have retired do not need to worry that your pension is at risk.

Fiscal responsibility is our priority. In the end, we must maintain it as we work through these difficult challenges. To do otherwise is to shirk our responsibilities today, passing along these challenges to future budgets and future generations.

To meet our fiscal challenges today, this budget makes over $140 million in agency cuts. This reflects savings that we're achieving through the elimination of 1,000 positions from state government during this year and last year, having 798 fewer cars in our fleet and reducing our lease payments and the square footage of our buildings. But our cuts go well beyond those. We looked at every agency and function to find savings.

We will save $1 million by pooling our IT resources across agencies. We will save $380,000 by reducing hours at the Smyrna rest stop. We are cutting programs that duplicate existing services. We are cutting back on the hours of some of the programs we provide, such as reducing night-time hours for the E-Z pass customer service center, which will save us almost a half-million dollars. We are cutting back on using contractors when we discover we can deliver the services more cost-effectively in-house. For example, the Department of Services for Children, Youth and Their Families will more efficiently provide services for residential care, which will create over $900,000 in savings.

We have been serious about finding efficiencies and reducing the cost of government. We have asked our agencies to challenge their conventional wisdom and look for ways to be more efficient, effective, responsive and responsible.

Most organizations who wish to serve the State compete for the opportunity to do so. They need to sharpen their pencils and argue their case each year because they are held accountable.

For some, however, the need to prove their efficiency and effectiveness each year has been diluted because they have been granted what is known as "pass through" status. That means instead of having direct accountability to an agency or a division, state money simply "passes through" an agency to that nonprofit or organization.

There are over 70 groups that fit this billing. In a time when everyone is being asked to demonstrate their value and sharpen their pencils, saying some can simply "pass through" is no longer an option.
As such, additional funding has been set aside for the Grants-in-Aid bill, and our recommendation is that a greater level of accountability and evaluation be applied to these programs by the Joint Finance Committee.

As I said earlier, we have taken great care in this budget to protect core services but not without demanding more efficiency.

Classroom spending in this budget is about the same as it was last year and greater than in Fiscal Year 2009. We fully funded the increases based on additional kids, funding 90 new teachers to maintain class sizes and giving salary step increases to educators who have earned them. In addition, we provide $98.8 million in Bond Bill funding for capital projects including minor capital improvements and funding to finish referenda projects in Colonial, Appoquinimink, Caesar Rodney, Smyrna, Lake Forest, Milford and Brandywine school districts.

But this budget forces districts to be more accountable for cutting their backroom and non-classroom costs. There have been various consolidation proposals that have suggested savings, and this budget aims at capturing those savings without jeopardizing the local decision-making parents have come to value.

We also need to inject more accountability into the cost of school transportation. Our current model is that the State pays it all and school administrators manage the program.

Not surprisingly, the costs of this program have grown dramatically, with the State spending $85.8 million last year, up 30 percent from Fiscal Year 2006. We have good people working in our school districts, but I firmly believe people tend to manage better when they are responsible, at least in part, for sharing the budget. This budget proposes a state/local share model to curb costs, forcing the districts to better manage this program and/or come up with the local share on their own.
To restore Delaware's promise and prosperity, we will reshape the way we, as a State, do business, to make Delaware a state where it is fundamentally easier to grow a business and create jobs.

Together, we will create a Delaware where entrepreneurs and inventors imagine the new products and services that make life better, more productive and more enjoyable for millions, and workers make good livings delivering these wonders to the world. Because employers want to locate in places with great schools and a great quality of life, we are making the proper long-term investments through our Bond Bill to ensure our state's long-term economic prosperity.

To that end, I recommend we provide $4.5 million in Bond Bill funding for the Housing Development Fund, which will maximize federal dollars from Washington and create construction jobs here at home. This is in addition to the $4.1 million we provide in the operating budget. This will leverage 34.4 million in federal and private dollars. Beyond that, the investment of $1 dollar in housing typically yields a 7-time multiplier in terms of additional indirect investment.

Using the one-time excess funds from the reserve and other funds, we are going to re-capitalize at $13.9 million the State's Strategic Fund, which was a critical tool in helping companies like Fisker Automotive, Advanced Aerosol and Nanticoke Hospital pledge to hire here in Delaware. This will allow us to quickly respond to opportunities to help businesses grow and attract new ones to our state.We also recommend a $10 million investment in our Port of Wilmington, which is a critical component of our State's economic infrastructure.

Our universities also play an important role in growing our State's economy. We will support plans to provide a center for high-tech laboratories, health sciences, alternative energy research and development and other emerging industries at the former Chrysler site. And, we will support minor capital and other campus improvements at Delaware State University and Delaware Tech.
This budget, while difficult, furthers the goals and vision I outlined in the State of the State. It demands a leaner, more efficient government. It encourages economic growth, and it better allows our children get a world class education, so they can work in first class jobs.

I want to thank Ann again for the hard work she and her team have put forth and hand it over to her

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