BEAR — The state panel that sets revenue projects for Delaware has forecast a Fiscal Year 2026 budget limit of $6.8 billion for now, setting the first benchmark for the next governor to consider while crafting a spending plan that covers infrastructure, capital projects and thousands of state employees.
That budget limit includes 2.7% more revenue than what is anticipated in the current fiscal year that ends on June 30. But the state is spending $8.7 million more than what is currently projected for the FY 2026 spending limit – another sign that state and academic leaders are considering showcasing Delaware’s trajectory of continuing to outspend its revenue.
If Delaware considers all committed expenses — salaries, benefits, debt service, Medicaid, capital projects and more — and assumes no growth in the operating budget and the grant-in-aid, it’s projected the state would have an additional $500 million for fiscal policy matters in FY 2026.
The report from the Delaware Economic and Financial Advisory Council (DEFAC), a non-partisan group of business and community leaders, academics, and government professionals that sets the state’s official revenue and expenditure estimates, is highly considered by the governor’s office and state lawmakers who craft the final budget.
However, these meetings may be more crucial as Gov. John Carney will be exiting the office in January, and either Rep. Mike Ramone or New Castle County Executive Matt Meyer will take his place. Both candidates have different views on how to handle Delaware’s budget, with Meyer claiming that he has the experience to navigate a tight budget as
he had done with the county government, and Ramone
eyeing the deferred expenses the state has to take on.
Another cause for concern among those on DEFAC is that the state government’s expenses have grown 12% over the last year overall. Some of the annual budget spending is discretionary and could shift with the upcoming gubernatorial election, but other increased costs come from fixed costs such as pensions and post-employment health care.
Salaries for state employees have cost $189 million more than last year, showing a 10% hike. The additional funding includes a 2% pay increase for state employees, collective bargaining increases as well as reduced job vacancies.
Delaware is also now committing 1% of its prior operating budget to a trust fund for Other Post-Employment Benefits (OPEB) for state retirees, under a
2023 law the General Assembly passed. That means in Fiscal Year 2026, Delaware is expected to commit $61.3 million to that trust —or $5.2 million more than the current year.
The state will also be working to address the looming OPEB liability with a bill Carney signed in late September: House Bill 330 which requires the legislature to set aside 0.50% of payroll expenses this upcoming year to fund the trust fund. That amount must increase a quarter of a percentage point each year until the OPEB Trust Fund hits the actuarially-determined annual required contribution.
In addition to addressing state employee benefits, another driving force for rising expenses is already committed funds to capital projects such as the Sussex and Kent counties family courthouses and the new barracks for Delaware State Police along Kirkwood Highway, among others.
DEFAC projects ending FY 2025 with a $225.9 million surplus to be rolled into next year, which mostly includes the state’s legally mandated requirement to save 2% of annual reserves in the “Rainy Day” fund for emergencies.
That surplus also includes $100.9 million which the advisory council added to its revenue projection for the current fiscal year, showing that the state performed slightly better than what was predicted at the last meeting. This was driven by Delaware seeing slightly more in corporate income tax, unclaimed property, realty transfer tax and personal income tax.
Corporate income tax is a volatile revenue source, since it depends on a company’s profits, but gross collections grew by 16% year to date, beating out earlier predictions. Realty transfer tax has been declining in the past two years, possibly because of the high interest rates on mortgages that drive people to stay in their homes instead of putting it on the market for now.
“I think this may be the one piece of the forecast with the largest risk, it's easy to see going very, very high,” David Roose, the state finance department’s director of research and tax policy, told DEFAC. “But if people decide to stay put, there just may not be a whole lot of houses on the market which may have the price side of the equation. But, you know, it remains to be seen in the non-residential property sales.”
DEFAC will next meet in December when it will publish an updated look at revenue estimates that the next governor will use to build his state budget recommendation.
