P a g e |1
1
TheMarkellFiscalLegacy:MeetingUnprecedentedChallengesWhilePreparingfortheFuture
Overview: TheDepartmentofFinance(DOF) iscomprisedof fouragencies, theOfficeoftheSecretary,theDivisionofRevenue,theDivisionofAccountingandtheStateLotteryOffice.Whileoffering somewhat disparate services, the Department’s agencies are united by a commonmission.
Distilledtoitsessence,theDepartmentofFinance’smissionistoprovidethefinancialmeansandtoolsneeded forStategovernment’seffectiveoperation.Goodschools,acleanenvironment,safe streets – none of these are possible without a sound fiscal foundation. Under typicalcircumstances,thismissionischallengingandcomplex.
Thelasteightyears,however,canhardlybedescribedas“typical.”
TheMarkellAdministration’sarrivalwasgreetedwithunprecedentedfiscalupheavalintheformofan$800millionbudgetshortfallthatwasthebyproductoftheworsteconomysincetheGreatDepression,financialcrisis,andgrowingchallengestokeyrevenuesources.
From this precarious starting point, Department of Finance went about its business withcomposureandprofessionalism,providing,asexpected,thefinancialresourcestofundessentialongoingservicesbutalsolayingthegroundworkthatnowformstheState’sfiscalfoundation:
• MaintainingDelaware’sAAABondRatingbyadheringtoprudentfinancialpracticesandeschewinggimmicksthatareinconsistentwithbestpractices;
• ModernizingtheState’sBusinessTaxesensuringDelaware’sbusinessclimateremainsamongthenation’smostcompetitive;and
• DevelopingaRoadMapforFutureReformbyengaginginanexhaustivereviewoftheState’srevenuesystemsoutliningloomingchallengesandpresentingclearheadedpolicysolutions.
While they may have followed separate paths and faced unique challenges, each of DOF’sagenciesplayedcriticalrolesinestablishingthisfoundation.
OfficeoftheSecretary
TheSecretaryofFinance’sOffice,undertheguidanceofThomasJ.Cook,promotesDelaware’sfiscalhealthfairlyandefficientlybyforecasting,generating,collectingandaccountingforfundscriticaltoessentialgovernmentservices.
P a g e |2
2
As discussed above, upon assuming office in 2009, DOF’s challenges were immense andimmediate.Asaconsequence,theurgencyofthesechallengesnecessitatedthattheOfficeoftheSecretaryemploya“triage”approachtopolicydevelopmentby:
• First,StabilizingtheFiscalBase--toensurethattheState’srevenuesystemproducesasufficientandreliableflowofrevenuesneedtofundessentialservices;
• Next,MaximizingResourcesandOpportunities–byimprovingoperationalefficienciesandidentifyingandupdatingoutdatedpolicymeasuressothatcitizensreceivethehighestreturnpossibleontheirtaxdollars;and
• Finally,PlanningfortheFuture–byopenlydiscussingtheState’smostpressingfiscalconcerns and assembling its most experienced financial minds to produce concreterecommendationsforcurrentandfuturepolicymakers.
StabilizingtheFiscalBase
GiventhespeedandextenttowhichtheeconomyunraveledduringFY2009, itwouldnotbewhollyunexpectedifthecrisisatmosphereproducedahastypolicyresponse.TothecreditofSecretary of Finance and Governor, this was decidedly not the case. Instead those initialdecisionswereguidedbysoundfiscalprinciplesthatcontinuetoshapetheDepartment’spolicyprocess.
The fiscal modifications that were adopted during this stage balanced revenue needs withDelaware’scompetitiveness.InitialincreasesinDelaware’scoretaxsourcesneededtoclosean$800million budget gapwere followed by successive adjustments designed to enhance theState’sbusinessclimate:
• TopPITRateCutTwice: As the revenuepicturebrightened,an initial increase in the
personalincometax’stopratefrom5.95%to6.95%wasfollowbytwotaxcuts,leavingthecurrenttoprate6.6%;
• GrossReceiptsTax:Aninitialgrossreceiptstaxincreasewasfollowedby:
• Twoacross-the-boardratereductions,• A25%increaseinmonthlyexemptions(from$80,000to$100,000)thatremoved
330businessesfromthetaxrolls;• A30%ratecutformanufacturers;and• A48%ratecutonsupermarkets’monthlyreceiptsinexcessof$2million
P a g e |3
3
• PublicUtilityTax:Aninitialrateincreasefrom4.25%to5.00%waslatermodifiedby:• Returningthegeneralrateongasandelectricitybackto4.25%;• Reducing from 2.35% to 2.00% the rate on gas and electricity paid my
manufacturers,foodprocessorsandotheragri-businesses;and• Repealofanout-of-date“wire-mile”taxontelephonetransmittersandlines.
MaximizingResourcesandOpportunities:
Asessentiallegislationhelpedtostrengthenthefiscalbase,theDepartmentcontinuedtoidentifywaystomaximizefiscalresourcesandopportunitiesthroughtheuseofeconomicdevelopmentincentives,capitalcostcuttingmeasures,andbycoordinatingwithothergovernmentagenciesandthepublictoprovidemoreefficientservice.
Economic Development: While economic headwinds put pressure on policymakers toincentivizejobgrowthandinvestment,theleanbudgetsthataccompanyatentativerecoveryalso mean fewer resources to support economic development incentives. The DepartmentrespondedtothischallengebymodernizingthreekeyeconomicdevelopmentprovisionssotheycoulddeliverbettertargetedincentivesatlittleornoadditionalcosttotheState.
• BlueCollarJobsTaxCreditsMadePermanent:InthecaseoftheBlueCollarJobsincometaxcredit,in2011DOFfoundthatbycuttingtheapplicationdeadlinetothree-years,itcould:a)limittheparticipationoffirmsforwhichthecreditwaslikelyanafterthought;and b) use the resulting savings to increase the size of the tax credit by 25% at noadditionalcosttotheState.
• Research & Development Tax Credits Doubled, Permanently: Similarly, the State’sResearchandDevelopment taxcredithad largelybeenunusedby smaller firms. DOFresearchrevealedthatthesizeofthecreditgrantedtosmallerfirmscouldbeeasilybedoubledandresultinnolossoftaxrevenuefortheState.
• Gross Receipts Tax changes to help retain local business: In 2011 and 2012 theDepartmentwas instrumental in craftingamendments to thegross receipts taxwhichmodifiedthetreatmentofwholesalepetroleumtransactions.TheseamendmentswerecriticaltotheviabilityofPBF’sbusinessmodelandabilitytoaccessdomesticfeedstocks.
P a g e |4
4
Upon it’s opening, PBF employed approximately 500 employees and 250 contractors,restoringover750jobstoDelaware.
Minimizing the State’s Cost of Capital: The DOF, through the Director of Bond Finance,strategically monitors debt outlays for opportunities and cost savings. Consequently theDepartmentofFinancehasundertakennumerousbondrefundings,maintainedanaggressivedebtamortizationscheduleduringdifficultbudgetcycles,takenadvantageoffederaltaxpolicytoreduceinterestcostsandadoptedstrategiestodiversifytheinvestorbase.Notablesuccessesinclude:
• $60.76million in present valuedebt service savings realizedbetween2009 through2016.
• TheState’sbondportfoliomatures70%ofoutstandingprincipaloverthenext10years,ameasureoftencitedasfavorablebyratingagenciesfortriple-Aratedstates.
• UsingthetaxablebondingabilityaffordedbytheAmericanRecoveryandReinvestmentAct,Delawareavoided$54.4millionininterestviaafederalsubsidythatitexpectstoreceiveoverthelifeofthebonds.
• Delaware’s investor base was once made up of only pension funds and insurancecompanies that used Delaware’s high-quality, long-term bonds to offset long-termliabilities.Retailinvestorswereintroducedin2005,butsincethen,foreigninvestors,attractedtothehigheryieldingtaxablebondsintroducedwithARRA,havebeenaddedtothemix.IntheOctober2014transaction,theStateissuedCRAeligiblebondscateringtotheneedofcommercialbanks.
PreservingtheUnemploymentInsurance(UI)TrustFund:Delaware’sGeneralFundwasnottheonlyelementofitsfiscalportfolioaffectedbytheGreatRecession.Asaresultoftherecessionandthenumberofjobslost,theUnemploymentInsuranceTrustFundpaidoutmoreinbenefitsthanitreceived.Asaconsequence,thedepletedTrustrequiredafederaladvancetocontinuethepaymentofunemploymentbenefits.Withafederalloanbalanceofalmost$80million,Delawarefacedthepossibilityofamandatorypunitive taxonemployers imposedby the federalgovernment to repay the loan.Witha stillsomewhatuncertaineconomicoutlook,however,anaddedtaxburdenonDelaware’employerswas considered anunacceptable option. The situation called for a better solution andDOFansweredthecall.
P a g e |5
5
DOFmodeledanddesignedaplantopayofffederaladvancestotheUITrustFundandreturnthefundtosolvency.WorkingwiththeDepartmentofLabor,membersoftheGeneralAssembly,theChamberofCommerceand labor leaders, thestrategyminimizedthenegative impactonDelawareemployersbyrepayingtheadvanceandgraduallyreplenishingtheTrust.EnhancingPublicServices: WithintheOfficeoftheSecretary,theUnclaimedPropertyOfficemadeiteasiertofindlostpropertybyintroducingasearchablewebsiteallowingindividualstosubmit claims and documentation in a secure environment, offering electronic filing forcorporateholdersofunclaimedproperty,andintroducingan imagingsystemwhichenhanceddocumentsecurityandimprovedprocessingefficiencies.
In2016DOFprocessedover13,900claimsworthmorethan$109million,surpassingpriorhighsbyfactorsof8and6respectively.
P a g e |6
6
PlanningfortheFuture:
Comprehensive Revenue Review: As the economy emerged from the Great Recession andbegan to record solid growth,DEFACmembers and leaders around the State noted that therecoverywasnotfullyreflectedintheState’srevenues.Therearetwoprimaryreasonsforthisresult.First,toomanyoftheState’srevenuesources,thelotteryandcorporatefranchisetaxes,forexample,arenotaligned to theeconomyand, consequently, fail to respond toeconomicgrowth. And second, other important revenue sources, like unclaimed property and thecorporate incometax,are inherentlyvolatileandunpredictable.Therevenuesystem’s lackofresponsivenesstranslatesintounceasingpressureonbudgetwriterstoidentifyandimplementcost-savingmeasureswhile itsvolatilityrequiresthattheydosowhentherevenueoutlookisoftenakintoa“movingtarget.”
OnJanuary14,2015GovernorMarkellissuedExecutiveOrderNumber47chargingtheDelawareEconomicandFinancialAdvisoryCouncil (DEFAC) toevaluateofDelaware’s revenueportfoliowiththegoalsofidentifyingmeansofensuringadequateresponsivenesstoeconomicgrowth,mitigatingvolatility,andpromotingeconomicgrowth.
The Secretary of Finance’s Office played the central role in ensuring that the evaluation ofDelaware’s revenue portfolio would adhere to DEFAC’s ethos of transparent, inclusive, bi-partisanandobjectiveanalyses.TheOfficeidentifiedcriteriaforevaluatingtaxpolicy;developed
P a g e |7
7
statistical analyses for measuring revenue sources’ performance against those criteria; andevaluated,modeledandpresentedpolicyalternativesdesignedtomeetthegoalsarticulatedinExecutiveOrderNo.47.
Findings&Recommendations: TheCouncil concluded thatthecombinationoftheState’suniquerevenuestructureandseveralpolicy“silverbullets”enactedoverthepast35yearshadeffectively insulatedDelaware fromsensibleupdates toitsmanyofitscorerevenuesources.TheCouncilsawtoothatintermsofrevenueproduction,theState’s“silverbullets”hadpeakedandwereunlikelytorebound.TheCouncilconcludedthatsensiblechangetocorerevenueswould be themost reliablemeans of improvingDelaware’sportfolio.TheCouncil’sfinalreportexaminedbothshort-andlong-term issues, including the possibility of new Staterevenue sources and refining the State’s fiscal controlsregarding cash balances and reserve funds. The reformsofferingthemostimmediatebenefits,however,centeredonthepersonalandcorporateincometaxes.
• PersonalIncomeTax- Responsiveness is challenged by erosion of tax base due to statutory exemptions,
especiallythosegrantedtoretirees;- For theentireportfolio to keeppacewithexpenditurepressures, it is critical thatPIT
remainsresponsive;- Improvingrevenueadequacywhilemaintainingeconomiccompetitivenessindicatesthat
base-broadening(asopposedtorateincreases)isthepreferredpolicyoption:§ Limitingoreliminatingitemizeddeductions;and/or§ Restructuringand/ormeans-testingelderlytaxbreaks.
• CorporateIncomeTax(CIT)
- Highlyvolatile,unpredictable- Uncompetitivewithotherstates
§ OutdatedapportionmentmethodharmsDelaware’scompetitiveposition§ Hightaxrate
AUNIQUEREVENUESTRUCTURE
• NoSalesTax• Amongthenation’slowest
PropertyTaxes• HeavyrelianceonIncorporation
TaxesandFees
PASTPOLICY“SILVERBULLETS”
• FinancialCenterDevelopmentAct
• Casinogamingrevenues• UnclaimedPropertyrevenues•
P a g e |8
8
- RecommendthattheStatereduceitsrelianceonCIT§ Moreweightonsalesfactor§ Lowertaxrate§ Evenquarterlypayments
A Working Policy Blueprint: The DEFAC report wasissued inMayof 2015 1andby Juneof 2016oneof itsprincipal recommendations had been adopted at adefiningmoment for the State’s economy. Consistentwith the Council’s recommendations, the “DelawareCompetesAct” changed theway corporate income taxapportionmentiscalculatedand,consequently,ensurescompanies won’t pay more for decisions to hire andexpandintheState.TheActpaidimmediatedividendsasitwasacriticalelementinChemours’(andlaterDow-DuPont’s)decisiontoretainheadquartersoperationsinDelaware.
The Competes Act’s scope extended beyond largecorporationsandincludedseveralprovisionsdesignedtosimplify burdensome filing requirements for smallbusinesses.TheActsimplifiedquarterlycorporateincometaxfilingsand restructured an outdated penalty provision thatcomplicatedsmallbusinesses’taxplanning.The Act also raised gross receipts tax and withholdingfiling thresholds that had remained unchanged forroughly 20 years. As a result of these changes, filingfrequencieswerecutfor:
• 1,000smallbusinessgrossreceiptsfilers,and
• 2,000smallbusinesswithholdingfilers.
1 The Final Report of the DEFAC Advisory Council on Revenues is available on line athttp://www.finance.delaware.gov/publications/defac/DEFAC_Advisory_Council_on_Revenue-Final_Report.pdf
UNDERSTANDINGTHEDELAWARECOMPETESACT
WHATISAPPORTIONMENT?
Apportionmentistheprocessbywhichmulti-statefirmsdeterminewhatshareoftheirtotalincomeis“assigned”toDelaware.
WHATWASDELAWARE’SMETHOD?Delawareused3-factorapportionment
• Propertyfactor• Payrollfactor• Salesfactor
Eachfactorreceivedequalweight
HOWDIDITWORK?Delaware’soldapportionmentformula:
WHATWASTHEPROBLEM?
IfDEemployment/investmentincreased:• Apportionmentincreased,and
consequentially,• TheamountofDelawaretax
increases.
THESOLUTION
Placemoreand,eventually,alloftheweightonthesalesfactor.
2017 50%2018 60%2019 75%2020 100%
THERESULT:addingjobsandinvestmentinDelawarenolongerresultsinhigherCITliabilities.
P a g e |9
9
GovernorMarkellSigns“TheDelawareCompetesAct”
FlexibleandResponsive:Closeontheheelsofthe“CompetesAct”theOfficeoftheSecretarywasagaincalledupontocraftataxpolicyresponsenecessitatedbyDow-DuPont’sdecisiontospitthemergedcompanyintothreeseparateandindependentcorporations.Delawarewasatoncethrustintoafreneticmulti-statecompetitionforcorporateheadquartersandthousandsofhigh-payingjobs.Unlike the Competes Act, there was no established “playbook” that couldmeet the uniquecircumstancespresentedby the seriesof corporate restructurings contemplated in this case.Ultimately,DelawaredeterminedthatitsviabilityversusotherstatesdependedontheState’sabilitytodistinguishitselfasanaturallocationforglobalheadquartersandacenterforresearchand development. In meeting this challenge, the Office of the Secretary worked withstakeholderstocraftthe“CommitmenttoInnovationAct.”Thislegislationincludedprovisionsthat:
• ModernizedtheResearchandDevelopmentTaxCreditensuringthatallcompanies
receivethefullresearchanddevelopmenttaxcreditforwhichtheyqualifyby:§ Removingtheannualexpenditurecapof$5millionand§ Makingthecreditrefundable.
P a g e |10
10
• ModifiedtheNewEconomyJobstaxcreditbyextendingthescopeofthetaxcredittoinclude jobs retained in the State by certain companies as a result of theestablishmentofaglobalcorporateheadquartersinDelaware.
TheCommitmenttoInnovationActwascriticaltoDelawaremaintainingitspositionasanR&Dleaderandthe
viabilityoffacilitieslikeDuPont’sExperimentalStationpicturedabove.
TheCommitmenttoInnovationActwasapivotalelementoftheState’sproposaltoDuPonttolocatetheheadquartersofboththeagriculturalcompanyspin-offanditsspecialtyproductsspin-offfollowingitsexpectedmergerwithDow.InadditiontotheeffortsprovidedbytheSecretary’sOffice,DOF’sDivisionswerealsoinnovating,exploitingopportunities,andlayingafirmfoundationforthefuture.
DivisionofRevenue
TheDivisionofRevenue’s(DOR)coremissionrevolvesaroundthreeactivities:taxprocessing,taxenforcementandpolicyformulation.Startingwithitsfirst-everamnestyprogramandcontinuingwith an upgraded audit presence, the Division’s heightened enforcement efforts havecontributedmillionstotheGeneralFund.ThroughoutthisadministrationDORhassuccessfullyleveragedtechnologytoincreaserevenuecollectionswithoutincreasingthesizeofgovernment.
P a g e |11
11
StabilizingtheFiscalBase:
• $33.5MillionCollected via TaxAmnesty Program: DOR administered a voluntary taxcompliance initiative for individuals and businesses lasting from September 1, 2009throughOctober30,2009.Duringthistime,thosewithoutstandingtax liabilitieswereinvitedtopaytheirpast-duetaxesorfilepast-duetaxreturnsfreeofpenalty,interest,and collection fees, and without fear of litigation. In addition to helping close anunprecedented budget gap, the amnesty increased the overall number of individualspayingtheirfairshareoftaxes,whichfurtherstabilizedtheState’srevenuebase.
• ImprovingNon-residentTaxCollections:InJuneof2010,DOFsupportedlegislationtofacilitatethereportingandcollectionofthecapitalgainstax,bynonresidentpersons,corporationsorpass-throughentitiesthatsellrealestateownedinDelaware.Thislegislationensuredthatcapitalgainsbedeclaredandestimatedtaxduepaidonthegainrecognizedfromthesalebeforethedeedisrecorded.Althoughthislegislationdidnotraisetaxes,itgavetheStateamoreeffectivemeansofcollectingtaxlegallyowedbynon-residentsoftheState.AsnotedbytheNewsJournalEditorialBoardonThursday,April4,2010“Thisisanefficient,revenuegeneratingbillthatcoststhestatenothingtoenforce.”
MaximizingResourcesandOpportunities
• $369.3MillionGeneratedThroughEnhancedBusinessTaxCollectionsfromFY2010–FY2016:ThisamountsharplyoutperformscollectionsprevioustoFY2010,whichrangedfromapproximately$5millionto$10millionayear.SinceFY2010,DORhasprioritized
P a g e |12
12
auditeffortstotargetoutstandingbusinessandcorporateliabilities.Throughtheadditionofnewauditprograms,processenhancements,andtwoleadauditorpositions.Lookingbeyondtheobviousfinancialbenefit,robustenforcementfulfillscoretaxadministrationprinciplesaseachdollarraisedthroughtheDivision’senforcementprogrammatchesthedollarpaidbythosealreadyincompliance(fairness)andcanalsoequatetoonefewerdollarneededfromDelaware’sbusinessesandfamilies(competitiveness).
• 30% Reduction in Refund Processing Times: In support of Delaware taxpayers,particularlyduringtryingeconomictimes,theDivisionwasabletoissuerefundsquickerandmoreefficientlythaneverbefore.
• Leveraging Technology: In January of 2013 theDivision of Revenue implemented anOpticalReadandIntelligentCharacterRecognitionprocessesforpaperreturns.Withaneyetowardincreasedefficiency,notonlydidthisprocessreducemanual laborefforts,but it improved internalcontrolsandenrichedthequality,amount,andspeedofdatacaptured.DORalsoeliminated$250,000incostsassociatedwithoutsourcingtheformskeyingandprovideda$30,000savings frommaintenanceandsupportonold imagingequipment.
P a g e |13
13
The mailroom’s modernization is a multi-phase project. The last phase will includeadditional benefits by speeding up the processing of corporate income tax returns,presentlyscheduledtobecompletedbyDecember31,2016,andmultipleotherrevenuetypessuchas therealtytransfer,alcoholicbeverage,andpublicutility taxes,currentlyscheduledtobecompletedbyJune30,2017.Electronicfiling(e-file)capabilitiescontinuetoexpandbeyondthepersonalincometaxandintotherealmofbusinesstaxes:TaxType Implemented ReturnsasofSept2016 PercentE-fileCorporateIncome 2014 37,800 53%Partnership 2016 19,000 65% E-filed returns require far less the manual effort to process. Prior to the aboveimplementation dates, 100% of corporate and partnership returns were processedmanually.
• $9millionSavedfromJanuarythroughSeptemberof2016:Delaware,alongwithotherstatesandtheIRS,isthetargetoffraudulenttaxrefundscamsthatfrequentlyinvolvethecreationofphonyW-2’s. ThroughthefirstninemonthsofCY2016DORstoppedover5,100 fraudulent returns and prevented the issuance of over $9million in fraudulentrefund requests. Not to be overlooked, the value of this effort in human terms isinestimableasitmeantthatthousandsofDelawarean’sweresparedthefrustrationandanxietythatisalltoocommontovictimsofidentitytheft.
• Cross-AgencyInitiatives:AsStaterevenueneedschangeandmodernize,DORisacritical
andagileteamplayer.DuringFY2011,inconjunctionwithDNREC,DORimplementedthebottle recycling fee and developed an enforcement program necessary to secureresourcesneededtoimplementcurbsiderecyclingacrosstheState.FromNovemberof2011toDecemberof2014theDORusedanauditortovisitapproximately2,400sites,identifying $32.5million in bottle sales for which the fee had not been remitted andcollecting$1.3millioninrevenuesDuringFY2013,DOFworkedwiththeDivisionofProfessionalRegulationtosupportandadminister legislation that would permit the suspension of professional licenses forindividualsowningover$1,000indelinquentStatetaxes.Sinceenactment,over$500,000inrevenueshavebeencollectedasaresultofthisprogram.
P a g e |14
14
PlanningfortheFuture:
TheDivision’sroadmapforthefutureincludesinitiativesthatwillaugmentDORprocessesby:• SchedulingamajorupgradeoftheimagingoperatingsystemthatwillensuretheDivision
can continue to process tax returns as filed and ensure that its enforcement andcollectionseffortsaremaintainedatthehighlevelsexperiencedoverthepastfewyears,
• Providingbetterrealtimeinformationtoon-sitecollectionsstaff,• EnhancingDORoutreachandcommunicationeffortsviaauto-dialcapabilitiesforinbound
andoutboundcalling,and• Reducingcostsandeliminatingwastefromreturnmail.
DelawareLottery
Throughthemarketing,distributionandsaleofLotteryproducts, theLotteryOffice isabletocontributeover$200millioninannualrevenues,whilealsodistributinganadditional$20millionin commissions and bonuses to its selling retailers which support local businesses and theircommunities. Maximizing sales from the Lottery’s offerings decreases the tax burden onDelaware’s businesses and helps to fund the delivery of government services to Delawareresidents.StabilizingtheFiscalBase:InFY2009legislationpassedincreasingtheState’sshareofvideolotterynetproceedsfrom34%to43.5%.Inthefaceofanunprecedentedbudgetgap,thischangegeneratedinFY2010aloneapproximately$36millioninadditionalGeneralFundrevenues. MaximizingResourcesandOpportunitiesDuringthisAdministration,theLotteryhascontinueditslongstandingtraditionofinnovation.InthespanoffouryearspolicymakersdirectedtheLotterytoimplement:
• ASportsLotteryandsubsequentexpansiontoretailoutlets,• TableGames,• InternetGaming,and• CharitableGaming
SportsLottery:Delaware’ssportsbettingproductwasintroducedin2009attheState’sthreecasinooutletsandgenerated$1.5millioninnewrevenue.By2012,TheSportsLotteryexpandedfromtheracinostoincludebrickandmortarretailers,whichwerelicensedandtrainedtobegin
P a g e |15
15
sellingforthe2012pro-footballseason.Thisexpansionwasextremelysuccessfulwithsalesup42%thefirstyear.By2016,theprogramhadexpandedtoanadditional102retailoutletsandtheSportsLotterycontributed$5.27millioninGeneralFundrevenue.ThisprogramisforecastedtocontinuetogrowthroughinFY17.TheretailexpansionwasimplementedwithnoincreaseinFTE’s.
TableGames: As the State looked forways to keeppacewithmounting competition in thegamingarena,TableGameswereauthorizedattheState’sthreecasinosandimplementedinlateFY2010.Since2010tablegameshavecontributedover$128millioninGeneralFundrevenueandsupporthundredsofnewjobsatDelaware’sthreecasinos.
CharitableGaming:InresponsetothecallforlimitedvideolotteryintheState’sfraternalandveterans’organizations,theDelawareLotteryandtheDivisionofGamingenforcementbecameresponsible for overseeing the State’s charitable gaming activities. There are 49 CharitableGamingOrganizationsandover486machinesinplaystatewide.Noadditionalstaffingresourceswere used to implement this new program, which has generated $4.5 m in General Fundrevenues and over $1.7 million in Charitable Gaming Organizations donations back to localcommunities.
P a g e |16
16
InternetGaming:LateinOctoberof2013,theDelawareLotterylaunchedthefirstinthenationcasinostyleiGamingplatform,includingpeertopeerpoker.Then,inFebruary2014,theLotterymadehistoryagainwhentheGovernorsofDelawareandNevadasignedthefirstofitskindMulti-State Internet Gaming Agreement. This Agreement allowed for “shared liquidity” of pokerplayersfromDelawareandNevada(pokerplayersfrombothstatessittingatthesamevirtualtable).Thenextadvancement,amobileapplicationforcasinoiGaming,wasintroducedinMay2015.Other Lottery Initiatives: In January 2013 the Lottery began Keno at select retail locationsthroughouttheState.Kenohasprovedverypopularandinterestinthegamecontinuestogrow.Inaddition,theLotteryworkedwithDHSSandthecasinostoimplementavideolotteryprize-interceptprocessforwinnerswhoareinarrearsonchildsupportorders.In early 2016 the Lottery introduced its first $25 price-point instant game, Quarter MillionLarge.ThisgamebecamethefirstinstantgamethattheLotteryeverre-orderedandwasamajorcontributortotheLottery’srecordFY2016traditionalsales,whichwereup17%overFY2015.PlanningfortheFuture
TheDelawareLotterynowoverseesmorepublicgamingproductsthananyotherlotteryinthecountry,includingtraditionallotteryinstantanddrawgames;videolotteryattheracinos;sportsbetting statewide; tablegamesat the racinos;Kenostatewide; LasVegas style iGaming;and,limitedvideolotterystatewide.TheDelawareLotteryhasahistoryofinventionandflexibilitythatwillcontinueforyearstocome.
DivisionofAccounting
Following its mission to provide expert accounting services and central support to Stateorganizations,aswellasconsistentandreliablefinancialinformationtothepublic,theDivisionhasinstitutedseveralprogramstobenefitDelaware.Itsfocusonbestpractices,transparency,andcommunicationhasallowedtheagencytoleadthechargeformore-responsibleaccountingpracticesingovernment.
StabilizingtheFiscalBase:
• FirstStateFinancials(FSF):InJulyof2010theState,ledbytheDivisionofAccounting,Implementedacomprehensive21stcenturyfinancialsystemthatproducesanaccuratedepiction of the State’s fiscal position and allows stakeholders to make informed
P a g e |17
17
decisions.Comparedtoitspredecessor,FSFprovidesmoretransparency,theabilitytoleveragenewtechnologies,andgreaterefficienciesgoingforward.
MaximizingResourcesandOpportunities
• Focus on Electronic Payment: As a large organization, the State of Delaware issueshundreds of thousands of payments annually. In an effort to streamline governmentcheckpayingactivitiestheAccountingOffice,throughtheuseofimprovedtechnology,wasabletomove1,400vendorsfromcheckpaymenttoACHandrealizea46%reductioninthenumberofchecksissuedfrom2009(307,091checks)to2016(163,027checks).
• OnlineCheckbook: In collaborationwith theOfficeofManagement andBudget,DOAcreatedandenhancedDelaware’sOnlineCheckbook.ThischeckbookimprovesDelawaretransparencybyofferingafreeresourcetothepublicthatdetailsfinancialdataonStatepurchases,reimbursementsandrevenues.Informationisupdatedmonthly,whichuserscandownloadforfurtheranalysis.
P a g e |18
18
• StateofDelawareTransparencyportal:InpartnershipwiththeGovernmentInformationCenterandtheDelawareOfficeofManagementandBudget,DOAcreatedtheStateofDelawareTransparencyportaltoallowuserstoreview,research,monitor,andinteractwithStategovernment.Thissitenotonlyprovideslinkstofinancialinformation,suchastheState’sOnlineCheckbookandEmployeeCreditCardpurchases,butitalsoservesasacentralrepositoryforStatecontracts,lawsandresearchinformation,andtheDelawarebudget.
PlanningfortheFuture
TheDivisionofAccountingisalreadylayingthefoundationforthefutureasDOAstaff:
• DesignasignificantupgradetotheStatesERPFinancialSystem,• ModernizePcardtraveltransactionsviamobileapp,and• WorktowardanewreleaseoftheState’sonlinecheckbookandPCardregisterthatwill
allowforgreatergovernmenttransparency.
InSummary
This Administrationwasmetwith unprecedented fiscal and economic challenges. Under theleadership of the Secretary of Finance, Thomas J. Cook, the DOF acted with a persistentcommitmenttocontinuetodeliverandimproveservicescriticaltoDelaware’sfiscalfuture.TheSecretaryofFinance’sOfficehelpeddesignpoliciesthatstabilizedtheState’srevenuebaseandcontributed to economic development; The Division of Revenue implemented enhancedtechnologies that improved customer service and redesigned audit processes that generatedmillions; The Lottery implemented 4 large-scale gaming products (Table Games, Sports,CharitableGaming,I-Gaming)andexpandedothers;AndtheDivisionofAccountingpavedthewayforimprovedandmoretransparentgovernmentthroughitsimplementationofabrandnewstate-wideaccountingsystemandbypartneringwithotheragenciestomakedatamorereadilyavailabletothepublic.
TheaccomplishmentsandsoundeconomicandadministrativeprinciplesthathaveguidedtheMarkellAdministrationhavelaidastronglegacyfoundationfromwhichfutureAdministrationsmaycontinuetothrive:
• AAABondRating:Delawarehasmaintainedatriple-Aratingfromeachofthethreemajorcreditratingagencies,Moody’s,S&PandFitch,andisoneofonlysevenstatesthathavemaintainedtheseratingssince2009.
P a g e |19
19
• GFOACertificateofAchievement for Excellence in FinancialReporting: The Stateof
Delaware’sComprehensiveAnnualFinancialReportearnedthisawardforthetwentiethconsecutiveyear.
• Enhanced,MoreEfficientGovernment:TheDepartmentofFinancehastakenonmanynewresponsibilities,creativelyshiftedresourcesandemployedmanynewtechnologiesthatmakegovernmentmoreeffectiveandefficient.