Carney proposes record $4.9B budget
WILMINGTON – Awash in an enormous budget surplus, Gov. John Carney released his Fiscal Year 2023 budget proposal Thursday that seeks a record $4.99 billion in operating expenses along with $1.18 billion in bond projects and capital spending.
“We made it through the worst of the pandemic without cutting services or raising taxes. Responsibly managing our state budget is more important than ever. This budget proposal will do just that,” Carney said in a statement announcing his budget’s details. “Delaware will come out stronger through this pandemic. That’s why we’re investing in economic development to prepare our state for the economy of the future. That’s why we’re continuing to invest in Delaware’s children, families and workforce. And that’s why we’re investing in protecting Delaware’s natural heritage.”
The FY 2023 operating budget, which includes government services and programs, is a 4.6% increase over the current year’s budget, while the capital fund is about 12% less than last year’s record long-term spending on physical projects and infrastructure.
The governor is also proposing to fund $215.9 million in one-time supplemental projects from the state’s more than $800 million anticipated revenue surplus next year. That is down about 2% from last year’s $221.1 million in such discretionary spending.
Delaware’s grant-in-aid funding, or state assistance for nonprofit service providers, cultural organizations, volunteer fire companies and veterans organizations, is proposed to be funded at $56.9 million, about 10% less than the current year’s $63.1 million. That’s largely due to extra spending initiatives passed by state lawmakers last year, however, as Carney initially proposed $55.5 million in grants-in-aid, or about 2.5% less than he’s proposing this year.
Despite the record spending plan, the budget is in a sense largely cautious. It falls well short of the legal limit of more than $5.94 billion, comes in just higher than the advisory budget growth rate of 4% and sets aside $15.2 million into the Budget Stabilization Fund that has become a staple achievement for Carney. That fund is intended to essentially smooth over rough fiscal years by saving in good years, over and above Delaware’s legally mandated requirement to save 2% of annual revenues in a so-called “Rainy Day” fund for use in times of crisis. The smaller stabilization fund would now total $302.5 million.
In terms of new spending initiatives, the FY 2023 budget proposal largely books money into school projects, totaling $339.9 million across all three counties. Carney’s Wilmington Learning Collaborative, an initiative to rethink public education in the city of Wilmington after a legacy of busing broke up communities, would receive $7 million while $12.8 million would go to addressing education disparities through the Redding Consortium. Other funds would be invested in libraries, courthouses, prisons, and state hospitals.
Economic development funding is largely constrained to four grant funds that the Carney administration has launched over his first five years in office. The Strategic Fund, which issues grants for job creation, retention and capital investment, would receive $30 million. Meanwhile, $10 million would be dedicated to each the Site Readiness Fund, which backs speculative development projects; the Graduation Lab Space Fund, which supports buildout of advanced lab space; and the Transportation Infrastructure Investment Fund, which invests in infrastructure improvements ahead of project development.
Carney’s proposal also gives $15 million to the Higher Education Economic Development Fund, which has supported the University of Delaware’s STAR Campus, an automotive center in Georgetown and a training center in Middletown for Delaware Technical Community College, and an aviation program at Delaware State University in the past. Another $6.5 million would go to the Riverfront Development Corp. in Wilmington, which is embarking on its Riverfront East project to expand redevelopment along the Christina River.
The governor is proposing to invest $88.7 million in compensation and pay increases for state employees, including moves toward a $15 minimum wage, increase to merit pay scales or 2% pay increases, depending on current pay scales and roles.
Despite an enormous, estimated budget surplus, Carney told Delaware Business Times that he was not yet prepared to cut any taxes – although he is proposing to double the volunteer firefighter tax credit to $1,000 and create a $12,5000 tax exclusion on military pensions. Last year, 11 Republican-led states cut either their individual income or corporate income tax rates while similarly sitting on large surpluses due to a rebounding economy and billions of dollars in federal stimulus spending over the past two years.
Carney said tax cuts were something his administration reviewed, but uncertainty over where historically high revenue levels are heading in the short term gives him pause about pursuing them.
“Would there be a time? Yeah. But there’s a lot of uncertainty in the economy right now. Particularly with this up-and-down, rollercoaster ride of the pandemic,” said Carney, who also served as former Gov. Tom Carper’s finance secretary for four years.
“There’s no great interest in cutting [corporate income tax]. It’s not a lot of money and it’s a lot of volatility,” the governor added.
Finance Secretary Rick Geisenberger agreed, arguing that businesses are more interested in stability from their state governments.
“We may reach a point where it makes sense to [cut taxes]. But whatever we do, we don’t want to come back two years later and have to tack it back on again, so that’s where sustainability comes in,” he said, noting Kansas faced that situation in the past decade.
While grants-in-aid funding is up slightly over last year’s initial proposal, Sheila Bravo, president and CEO of the Delaware Alliance for Nonprofit Advancement, a state industry association for nonprofits, said she expected to lobby the legislature for additional support considering the strong state financial position.
“Our hope is that, with the positive revenue, there would be a consideration to increase grant-in-aid funding, particularly because of the wage increases that not only are getting mandated by minimum wage, but are also the realities of trying to hire people right now,” she told DBT. “So nonprofits are experiencing higher costs in order to remain competitive, and they’re also probably also paying more in their staffing line so that they can retain employees.”
The legislature’s Joint Finance Committee will begin reviewing the operating budget proposal in February while the Bond Bill Committee reviews capital spending. After four months of hearings and deliberation, the committees will release the annual spending bills to the entire General Assembly in order to approve the FY 2023 before the start of the next fiscal year on July 1.