Abandoned property revenue is the opiate of the state
In June 2014, I received a letter from my bank about a money market account that my wife and I hold for retirement. It stated that, "A recent review of your account indicated that you have not initiated any transactions over an extended period of time. Consistent with state abandoned property laws, we must change your account status to Dormant...or we may be required to report your account as unclaimed/abandoned...(then) will be transferred to your state's custodian for abandoned property."
The "extended period of time" of inactivity mentioned was only 2 years. So, this was sort of an advance notice of confiscation, or escheatment as they prefer, since accounts are to be protected for 3 years. It used to be 5 years until 2008.
As an overview, a 5-18-2014 article in The News Journal reported that, "Over the last decade, the state has collected more than $4.3 billion in abandoned property revenue, with more than $1.6 billion coming from audits of corporations. Lawmakers having used $3.8 billion to balance the annual budget, also using the revenue to fund road improvement (etc)..according to data from the state Finance Department." The state has only returned $118 million (2.7percent) back to owners during FY2004-13.
This clever strategy extends nationwide if a corporation is incorporated here and even includes our unused gift cards!
In a January 2015 article, Barrons' newspaper reported that in 2015 gift card buyers spent $130 billion nationally, though close to $1 billion went unused last year, known as spillage or breakage. There has been $21 billion in cumulative "spillage" since the start of 2008.
Delaware's portion of this loot is unclear, though I was told that, "Gift card owners are able to recover the value of their cards from the state by presenting the card allowing the state to match the serial number." Of course, if you lose the card, there's no recovery; you and the card seller lose; the state cashes in.
But, the real issue is that the abandoned property funds have become the state's third largest revenue source (13percent-$430 million avg.) behind only personal income tax (33percent) and franchise tax (23percent). But now, the proceeds from these golden eggs have apparently crested and storm clouds are gathering.
New Gov. John Carney and the legislature are facing an estimated $350 million gap (9percent) between revenue and spending in a $3.9 billion budget.
The ramifications are described in the Delaware Business Roundtable's August 2015 report titled, "Delaware's Structural Budget Problem." In it they say that although the economy and employment have improved, Delaware "now faces a structural budget shortfall that will expand over time, growing to 11 percent of its budget ($600 million) in 10 years unless steps are taken to bring the revenue and expenditure trajectories into line. It also faces an economic problem wherein it has seen jobs and per-capita income shrink relative to the rest of the nation over the past decade."
Here's an example of the problem on the spending side. In FY 2014, the top expenditure in the budget was public education at 33 percent or about $1.3 billion annually. The report related that, "K-12 spending in 2012-13 was $14,890 per-pupil, 52 percent higher than the national average."
Then, in his State of the State speech three years ago, Governor Markell remarked that, "only 20 percent of our kids graduate from high school are ready for college or a career." This despite an additional $119 million in Race to the Top grant funding. Sounds like an area ripe for audit and reductions.
In conclusion, the Roundtable says, "When considering options to deal with its long-term structural shortfall problem, it is important that the state focus on improving its economic growth and avoid further burdening its economy with over reliance on tax increases. The good news is that the state can go a long way toward restoring budget balance by restraining spending growth over time, especially in the areas of K-12 Education, Corrections, Public Welfare and personnel costs..."
The state's addiction to spending has created a monster that has grown approximately 75 percent since 2000. The unethical, aggressive auditing in "abandoned property" claims has filled the gap but faces legal challenges. It's time to live within our means and follow the Roundtable's outline.
In the meantime, pay close attention to happenings in Dover; keep a close watch on your bank account status, and spend those gift cards.
Geary Foertsch lives in Rehoboth and writes from a libertarian perspective to promote policies supporting economic liberty, free-market, small government and anti-war. He can be reached at firstname.lastname@example.org.