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Panel sets Delaware’s FY26 budget at $7B for Meyer

December 18, 2024 |By Katie Tabeling

David Roose, director of research and tax policy for the Delaware Department of Finance, discussed uncertain factors at the federal level during the December report for DEFAC | DBT PHOTO BY KATIE TABELING

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WILMINGTON – In the final meeting of the financial analysts assembled under Gov. John Carney, the panel set Delaware’s budget limit a little more than $7 billion for the next fiscal year, leaving Gov.-elect Matt Meyer on strong ground when he considers the state’s budget in the upcoming months. It’s the largest amount Delaware has seen in the past seven years, and perhaps a testament to Gov. John Carney’s focus on fiscal stability amid uncertain times. The outgoing governor has maintained seven consecutive budget surpluses as well as seen growing the general fund balance to $1.8 billion in four years, with help from the unprecedented million allocated by the federal government during the COVID-19 pandemic. But with Carney set to leave office next month and Meyer preparing his own administration and taking on fiscal policy, it remains to be seen how he chooses to move forward. Meyer had previously told the Delaware Business Times that “math always wins” when it comes to government spending, but also noted that he was not in favor of bolstering savings for the sake of it. Carney has historically shown he is unlikely to propose spending large sums of money, erring for caution amid continued fears of a future recession. His final budget for Fiscal Year 2025 was about $400 million less than the available spending authority. Charuni Patibanda-Sanchez and Brian Maxwell, Meyer’s picks for Secretary of State and Office of Budget and Management respectively, sat in on the Delaware Economic and Financial Advisory Council (DEFAC) meeting on Tuesday to prepare for what lies ahead. The December report from DEFAC, a non-partisan group of business and community leaders, academics, and government professionals, shows that the state is projected to end the fiscal year with a $370 million surplus. DEFAC also calculated a benchmark index rate of 5% to yield a budget target of $7.016 billion to cover the state’s operating budget, grants-in-aid and cash contributions to the budget and the retirement benefits for state employees. Right now, the budget reserve fund holds $350 million and the budget stabilization fund has $470 million. The benchmark rate is a target used to measure government spending growth against the state’s growth, and Delaware has often outspent that rate in the past. The Office of Management and Budget projects salaries, fringe benefits - including the start of the Paid Family Leave tax - and health care costs to cost hundreds of millions of dollars, with the impact of health care premiums still unknown. Delaware has made strides to funding the Other Post-Employment Benefits (OPEB), which has long been a challenge to address, though Delaware Finance Secretary Rick Geisenberger noted that much improvement has been made in the past 10 years. In one of Carney’s last bills he signed to solidify Delaware’s finances, the state is now required to commit 1% of its prior operating budget to a trust fund for Other Post-Employment Benefits (OPEB) for state retirees. That amount is $61.3 million now. Uncertain times [caption id="attachment_468333" align="alignleft" width="300"]

Delaware Finance Secretary Rick Geisenberger sat in on one of his last meetings on the DEFAC panel, as he will be retiring soon. | DBT PHOTO BY KATIE TABELING[/caption] DEFAC members spent much of time on Tuesday afternoon discussing the uncertainty of the future when it comes to President-elect Donald Trump’s tax policies and how it may impact Delaware, which has a unique revenue base that depends on the unpredictable corporate income tax and personal income tax. The state and local tax (SALT) deduction capped at $10,000 through the Tax Cuts and Jobs Act of 2017 had significantly impacted Delawareans, but state Department of Finance Director of Research and Tax Policy David Roose noted that the shifting proposals, including a $20,000 deduction, make it difficult to forecast the state’s financial future. In particular, repealing the personal tax exemption and increasing standard deduction was where most Americans saw the impact, but had minimal impact in Delaware. “One thing that probably makes it a bit tricky is that taxpayer behavior will play a role in these things, especially in capital gains,” Roose said. “Once taxpayers get a better sense of what’s coming, they could choose to defer or accelerate income. It also comes down to implementation. Are they done the way they’re normally done, or will there be provisions that will absolutely affect Delaware revenues.” In a preliminary analysis from the Department of Finance and the Tax Foundation, an independent tax policy think-tank, Delaware could see the cost at least $250 million per year, though that’s examining all of Trump’s proposals he made on the campaign trail and not all the data was available. The Tax Cuts and Jobs Act business taxes would have the most projected impact on the state’s revenues. “What we will do when the time comes for this is to rely on the data we get from the IRS, which is as good as anybody is going to get, and consider many factors,” Roose said. “But as a result there still is some uncertainty.” DEFAC had reported a $20 million to the corporate income tax projections for this fiscal year, and has projected a $4.1 million decrease in the next fiscal year due to paying out large tax credits. Personal income tax withholding has held strong, with $35 million added to projections for FY 2025 and another $37 million in FY 2026. While DEFAC does not set tax policy, its chair Mike Houghton raised the point of a hypothetical tax increase for those who make more than $60,000 or even a so-called millionaire tax to help address the explosive growth faced by many retirees coming to the state. Geisenberger, who had served in Carney’s cabinet for eight years, said that the best and most popular way to raise revenue was through economic growth to match it. With a 7% increase in personal income tax revenue for the year, that holds true, he said. “Kurt Foreman [the Delaware Prosperity Partnership CEO] I think would tell you if you raise the top rate, it doesn’t matter to how many people that applies to. But whatever that top rate is, that’s what you have to compete with when you’re in economic development,” he said.