Delaware budget eased by unclaimed property
Delaware’s revenue picture looks less than rosy, but the state’s surfeit of unclaimed property is once again helping to balance the budget. This year, roughly $435 million in revenue comes from unclaimed property, or escheated funds.
| How do escheated fund collections work? |
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Unclaimed property, also referred to as abandoned property, refers to accounts in financial institutions and corporate entities that have had no activity generated or contact with the owner for a year or longer. Common forms of unclaimed property include savings and checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler’s checks, unredeemed money orders and gift certificates. When unclaimed property goes dormant, meaning the owner does not make use of it for a prescribed amount of time, the holder is required to attempt to locate its owner. If the owner cannot be located, the asset must be escheated, or forfeited to the state.
In Delaware, officials follow a primary and secondary rule to escheating funds. Under the primary rule, the funds are escheated, or forfeited to the state in which the person lives. Under secondary rule, funds from entities incorporated in Delaware are escheated to the state. “The way we benefit from this financially, as a state, is the secondary rule,” said Dave Gregor of the Department of Finance. There are three categories of escheated funds. The first is regular collection, which consists of abandoned property reported to the state by a Delaware corporation. About 3,500 corporations regularly report abandoned property. A second category of escheated funds involves enforcement. To encourage proper reporting, the state can audit companies back to 1981. Companies that voluntarily come forward with previously unreported escheated funds are audited only to 1991. The third category for escheated funds involves stocks. As stocks are escheated to the state, they are held for at least 30 days before being sold. The state then liquidates the stocks for money, holding the money in the state treasury. Extraordinary items are escheated funds that are disputed. The state has $30 million in contingency funds for disputed claims. |
The Office of Management and Budget is recommending about $31 million of escheated funds for the operating budget and Bond Bill. About $17 million is earmarked for the Bond Bill to pay for the governor’s Strategic Fund, which offers low-interest loans and grants to jump-start small businesses, and $14 million is slated for the Transportation Trust Fund.
The remainder of escheated funds – about $404 million – will go toward the general fund.
“Between December 2009 and June 2010, the state saw a significant increase in revenue from abandoned property. The administration recommended that this additional revenue go toward items, such as the Strategic Fund, which will help bring more businesses to Delaware and put people back to work,” said Catherine Kempista, budget office spokeswoman.
She said Gov. Jack Markell’s original proposal for the Strategic Fund in January included $13.9 million for the Bond Bill. The $17 million, which has been recommended to go into the Bond Bill as a result of increased revenues, is above and beyond the original recommendation.
“It’s been the recommendation of the administration to put one-time revenues toward one-time projects, including funds such as the Strategic Fund,” said Kempista.
In January, Gov. Jack Markell had proposed a $3.2 billion general fund operating budget with $357 million recommended for the Bond and Capital Improvement Act.
In order to cut costs, part of Markell’s proposal was to consolidate county row offices, such as Register of Wills and Recorder of Deeds into a statewide office. That idea was killed in a House Administration Committee, Wednesday, June 16.
Another controversial proposal to shift the cost of busing from the state to local school districts has also drawn stiff opposition.
Brian Selander, the governor’s spokesman, called the busing payment system arcane and said Markell inherited inefficiency.
While he’s had some setbacks, Selander said Markell plans to reverse the 2.5 percent pay cuts for state workers that were put in place last year as the state faced a $800 million budget shortfall.
But Republicans say cuts are needed – again. Some Republicans warn that $123 million in federal funds would not be available next year, and they urged Markell to reduce the size of state government by 500 more positions.
“It just seems to me that now is the time to implement cuts and start making state government smaller because the revenues did not come in as a lot of people were hoping they would,” said House Minority Leader Richard Cathcart, R-Middletown. “I think it’s time to start talking about a lot of things the House Republican Caucus has proposed, such as consolidating the administrative functions in schools and reducing the work force through attrition so that we can start cutting back on this budget.”
House Majority Leader Rep. Pete Schwartzkopf, D-Rehoboth Beach, praised Markell for running the state more like a business. “The bottom line is you can’t sit back and say cut, cut, cut. At a certain point, the governor’s treating government like a business, bringing a businessman’s approach,” said Schwartzkopf. Schwartzkopf said nearly 1,000 state positions have gone unfilled and state departments also took 10 percent cuts off the top. Some state jobs are driven by formulas, such as state teachers. Other positions such as those in law enforcement cannot be cut for safety reasons, said Schwartzkopf.
He also said bills that would cost money to implement are now facing greater scrutiny. “One thing we’re doing in the House is, if it has a fiscal note, we’re trying to not bring it forward,” said Schwartzkopf.
House Minority Whip Rep. Danny Short, R-Seaford, says the state budgeting process seems to be moving ahead with little regard for increased spending. “This is the calm before the storm in my mind, and if we don’t deal with it right now, in a very conservative manner, we’re going to have a storm next year that’s just going to be unbelievable,” he said.
Markell on Tuesday, June 22, proposed a $3.2 billion operating budget, Senate Bill 310, which was laid on the table in the Senate. The Senate could vote on approving the budget as early as Thursday, June 24, followed by its introduction in the House next week. Lawmakers must pass a balanced budget by Wednesday, June 30.
Unclaimed funds boosts revenues
In 2006, the National Association of Unclaimed Property Administrators called Delaware a tax-friendly environment, making it the legal home to many of the country’s largest corporations. One result is that after personal income taxes and corporate franchise taxes, unclaimed property is the state’s third largest revenue source.
This year, the state will collect about $435 million from uncashed paychecks, stocks, and unclaimed savings and checking accounts. Last year, the state collected $505 million in escheated revenue.
Sam Hoff, a law and political professor at Delaware State University, said because it receives a large amount of escheated funds, Delaware, unlike other states, has been able to run in the black.
“It seems that in terms of expected revenue that escheated funds are generally built into state spending. I think it’s been a pleasant windfall for the state for several years. Certainly when you look where the state’s been over the past couple of years, it’s been helpful to have the escheated funds,” said Hoff.
