DOVER — Headed into his final months in office, Gov. John Carney proposed on Thursday a measured spending plan with a $6.1 billion Fiscal Year 2025 operating budget, representing a year-over-year increase of 8.45%, along with $943 million in bond-funded and multi-year capital improvement projects.
With the General Fund operating budget, bonded projects, grants-in-aid to nonprofits and one-time supplemental funding, the proposed FY 2024 budget allocates more than $7.1 billion in total spending authority. That’s the same level as the total spending plan from last fiscal year.
With a careful eye trained on state employee retiree health care and other post-employment benefits, OPEB liabilities and revenue forecasting a slowdown, Carney told reporters after his budget address that he opted to create a sustainable spending plan for the next administration.
“We’ve got some significant built-in obligations in health care and state employees… but you got to make sure that it’s sustainable from the out years,” the governor said. “The legislators look at what’s right in front of them, and sometimes they don’t look to next year. That’s what we’re trying to get them to do.”
The FY 2025 budget was crafted with some of the lowest projections set by the Delaware Economic and Financial Advisory Council since the COVID-19 pandemic. With no sales tax and two unpredictable chief revenue streams — corporate tax and personal income tax — the Carney administration is relying on some spreading room from setting conservative budgets in the past three years.
Carney continues to fund major hallmarks of his tenure: fully funding the state’s so-called “Rainy Day” savings fund and maintaining a budget stabilization fund. He established the budget stabilization fund to smooth over any budgetary issues. This year, the governor did not add any additional money to the budget stabilization fund, leaving its total at $410 million.
The legislature’s Joint Finance Committee is set to begin hearings on the budget proposal on Jan. 31 to make any additions or subtractions from the spending plan. The FY 2025 budget must be approved by June 30 to meet the start of the state’s fiscal year on July 1.
Health care and liabilities
Last year, health care costs for retired state employees and OPEB liabilities were among the least discussed topics. This year, Carney is proposing major investments in both to move the needle on financial obligations.
Delaware spends nearly $2 billion on health care on Medicaid and insurance plans for state employees and retirees, which is nearly 40% of the operating budget. The FY 2025 budget proposal includes $200 million to address health care inflation, as well as $93.9 million to take on the state group health insurance plan shortfall. Another $56.1 million is set aside for one-time spending to OPEB liabilities.
“We came into this administration with an eye on thinking how to get our arms around health care cost inflation, but with [the pandemic] and hospitals under the gun and a lot of federal money coming through, we couldn’t lean into it,” Carney told reporters on Thursday afternoon.
With the stop of continuously enrolling people to Medicaid in spring 2023 and ending the matching funds last month, the Kaiser Family Foundation reports that millions of Americans are set to lose Medicaid coverage. A report from KFF shows that as of this week, Delaware had 33,100 estimated people disenrolled in Medicaid while another 90,000 had their coverage renewed.
“There are some people as they cycle off Medicaid, they can pick up cheaper plans. But we’ve also had trouble estimating the impacts of that,” Carney said. “The bottom line is that we have to do a better job of controlling the costs. To me, [the fact that] this is 40% of the budget should be a wake-up call to our legislators. The numbers are going up faster than our revenue.”
Economic Development and Workforce
The governor’s proposed budget also continues to fund the four chief grant funds that his administration has developed, with a total of $32.5 million allocated.
The Strategic Fund, which provides grants to employers that create or retain jobs, or make significant investments in projects here, would receive an annual allocation of $12.5 million.
The Site Readiness Fund, which backs planning, site work and infrastructure installation as a means to attract new development projects, would receive $10 million.
The Graduated Lab Space Fund, which matches investments in the building or retrofitting of new lab space in the state to foster a growing life and materials sciences sector, would receive $5 million.
Finally, the Transportation Infrastructure Investment Fund (TIIF), which backs changes to the state’s roads, railway and more to support large development projects, would receive $5 million.
Delaware Finance Secretary Rick Geisenberger touted the investments the Carney administration has made with these funds, noting that 32,100 net jobs have been added to the state.
The governor has also built in $20 million for research collaboration for National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) and SABRE Center, ideally to keep pushing the First State ahead in bioscience and pharmaceutical innovation.
“We have this big pharmaceutical plant being built outside of Middletown, and one of the reasons we believe they chose there was that the pipeline of people coming out of the University of Delaware,” he said. “With significant federal resources [to aid funding]… we think there are other opportunities and pharmaceuticals and biosciences that NIIMBL and SABRE will help with.”
The governor’s proposal also factors in a 2% minimum increase for state employees across the board. It also moved toward paying teachers a starting salary of $60,000 in the next three years.
Other funding
The FY 2025 proposal also includes a mix of other previous commitments Carney had made in the last four years, namely in education and environmental causes.
The budget includes $83 million to expand purchase of care for families that have a gross income of 200% or less of the federal poverty line. This essentially increases the subsidy for low-income families to pay for child care, opening access to around 600 children.
Carney’s proposal also includes $16 million in the Early Childhood Assistance Program, which funds early childhood programs for low-income and special needs 3- and 4-year-olds around the state.
Opportunity Funding, targeted to lower-income or English as a second language students, also received $63 million, and the state is looking to add $56.5 million for student unit growth.
On the whole, the proposed spending plan also includes $129.6 million in climate action initiatives, like $7.5 for electric vehicle infrastructure, $24.7 million for shoreline and waterway resiliency and $20 million in aglands and open space preservation. Some of the funding is fueled by federal and grant funds.
