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Gov. Carney proposes record $5.4B budget

Jacob Owens January 26, 2023

DOVER – With a nearly $1 billion estimated revenue surplus, Gov. John Carney proposed on Thursday a record $5.48 billion Fiscal Year 2024 operating budget, representing a year-over-year increase of 7.4%, along with nearly $1.29 billion in bond-funded and multi-year capital improvement projects. Between the General Fund operating budget, bond and capital projects, grants-in-aid to

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[caption id="attachment_229323" align="aligncenter" width="1024"] Delaware Gov. John Carney Fiscal Year 2024 budget

Gov. John Carney discusses his Fiscal Year 2024 budget proposal during a Jan. 25 media briefing in Dover. | DBT PHOTO BY JACOB OWENS[/caption] DOVER – With a nearly $1 billion estimated revenue surplus, Gov. John Carney proposed on Thursday a record $5.48 billion Fiscal Year 2024 operating budget, representing a year-over-year increase of 7.4%, along with nearly $1.29 billion in bond-funded and multi-year capital improvement projects. Between the General Fund operating budget, bond and capital 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. The fiscally conservative Carney continues to fully fund the state’s so-called “Rainy Day” savings fund, which protects the state’s AAA bond ratings, as well as the Budget Stabilization Fund that he created to smooth unforeseen budgetary issues. The FY 2024 budget would allocate $18.9 million to the latter, pushing its current total to $421.5 million. The legislature’s Joint Finance Committee will begin hearings on the budget proposal next week to consider whether to make any changes to the governor’s spending plan. The budget must be approved before June 30 as the state’s fiscal year begins July 1. Tax cuts? The FY 2024 budget proposal does not contain any significant tax cuts, but does increase the state’s standard income tax deduction for the 2024 tax year by 75%, moving from $3,250 to $5,700, or $6,500 to $11,400 for joint filers. The budget would also increase the refundable earned income tax credit to 7.5% of the federal credit for the 2023 tax year, assisting low- and moderate-income filers. The Carney administration estimates that about 50,000 tax filers would benefit from the deduction increase by switching from an itemized return, while 20,000 filers would have net tax liability reduced to zero or receive EITC refunds. Those tax changes would cost the state $24.9 million in FY 2024 and $55.7 million in FY 2025, officials said. Carney reportedly was considering a small tax cut – he wouldn’t comment on what it would have been – but decided instead to invest additional funds in pay raises for state teachers to help stem the tide of recent educator losses. When asked whether he would support or veto a proposed 1% reduction in Delaware’s real estate transfer tax – which was raised 1% in 2017 to help solve a budget deficit – the governor was noncommittal. He said that he was concerned about being able to meet future investments, especially in the state workforce amid rising wages, which would dissuade him from making major changes in tax policy for now. Carney also noted that the legislature pushed for a 1% state tax increase on real estate sales, while he advocated for a smaller increase in the state income tax to solve that prior budget crisis. That tax cut proposal was voted out of a House committee this week with bipartisan support, potentially heightening the prospect of a veto showdown. Economic development The governor’s proposed budget continues to fund the four chief grant funds that his administration has developed, allocating a total of $50 million to them. 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 $25 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 $10 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. Aside from those established funds, the governor is not proposing to fund any new grant programs targeted at economic development. State’s workforce Carney had already announced that he was recommending a 3% pay increase for all state education workers and a 9% increase for classroom teachers – although that affects only the 70% of wages paid by the state. Noting that the state government has thousands of unfilled positions though, the governor is also proposing increases to all state workers ranging from 3% to 9%, with the lowest wage workers receiving the biggest increase. He is also establishing a new $15 minimum wage for all merit full-time state employees, moving ahead of the timeline to do so by 2025 under a law passed by the state several years ago. “This has been a priority of mine since day one,” Carney told reporters Wednesday night during a press briefing. “The fact of the matter is the market has gone way beyond that. If you go to Wawa every morning like I do, you see it right on the front door. They pay more than a $15 minimum wage and they provide education benefits, etc.” He noted that the state was struggling to hire at the Ferris School youth detention center west of Wilmington, in part because it’s near Amazon facilities that are offering higher wages. Future liabilities One of the least discussed issues confronting Delaware is its growing state employee retiree health care and other post-employment benefits (OPEB) liabilities. Delaware Finance Secretary Rick Geisenberger said the state’s current OPEB liability is calculated at about $8.9 billion, and that is expected to double in the next 20 years as retirees live longer and receive health treatments that continue to become more expensive. The FY 2024 budget invests $143.2 million to address the state’s group health insurance plan shortfall as well as $51 million to address some future OPEB liabilities – a funding commitment they plan to make annually. Last summer, retirees fought back against a state plan to change their insurance to a Medicare Advantage plan, which they fear could limit coverage. An advocacy group has sued the state over the move, and plans were protected for this benefit year, but future changes are still likely. Carney, who served three terms in Congress, noted that the issue is similar to the federal debate over how to address the solvency concerns of Medicare or Social Security. Unlike pensions, where the state funds 89% of future liabilities before an employee is vested, post-employment health benefits are pay-as-you-go. Health care premiums fund about 1% of the state’s total health care costs for retired employees and about 20% for active employees, Carney said. “We've got benefits that have been promised without the funding to go with it,” he said. “That's a financial model that doesn't work. So we've got to find ways that are not punitive, that are fair.” Geisenberger noted that the state government would have to address plan eligibility, plan coverage design and funding in order to solve the huge outlying liability though. “I’m more optimistic today than ever because we’re talking about it,” he added. Early childhood investments The FY 2024 budget proposal makes several investments in child care and early childhood education, which Carney believes will also help child care centers also facing labor shortages, parents seeking to get back to the workforce, and the education system that has seen declining early reading results. The budget increases the state’s purchase of care (POC) rate to the full 75th percentile of the 2021 Market Rate for the first time, essentially increasing the subsidy for low-income families to pay for child care. That $10.3 million investment will hopefully open more capacity in daycares and trickle down to workers there. Because Delaware’s child care ecosystem is privately run, however, the state has little data on how the POC funds are spent and Carney said that he would require more data submission for receipt of the higher subsidy. Carney is also proposing to double the investment to $12.2 million in the Early Childhood Assistance Program, which likewise funds early childhood programs for low-income and special needs 3- and 4-year-olds around the state. Other funding Utilizing a mix of state and federal funding via the American Rescue Plan Act (ARPA), Carney is proposing to make a record $101.5 million investment in affordable housing, including loans, grants and incentives to offset costs and encourage developers to increase below-market-rate unit availability around the state. The budget also funds $60 million in deferred maintenance, capital improvements and technology upgrades at the University of Delaware, Delaware State University and Delaware Technical Community College while adding more than $7 million to scholarship programs impacting the trio. It also chips in $1.5 million to support a Joint Engineering Program between UD and DSU to increase the number of engineers in the state. In environmental issues, Carney allocates $53.7 million to a mix of agriculture land preservation, open space grants, shoreline and waterway resiliency and to clean water and wastewater upgrades. Republican reaction The governor's budget proposal received a warm response from the Republican members of the Joint Finance Committee, who spoke to reporters following the public release of the budget. Rep. Kevin Hensley (R-Middletown/Odessa) and Rep. Ruth Briggs King (R-Georgetown) commended the governor for lowering the effective tax burden on many Delaware families, investing in affordable housing and funding salary increases for teachers. However, they said public safety should have received additional funding as well as nonprofits, whose grant-in-aid allocation largely mirrors previous years. They also voiced some concern that Carney chose to exceed the benchmark appropriation rate of 6.1% recommended by the Delaware Economic & Financial Advisory Council by more than a full percentage point. Hensley, who is also a realtor, also added that he was disappointed that Carney didn't propose to lower the real estate transfer tax in the budget, noting that it's the highest property sales tax rate in the country at 4% of sale value. While he understands the governor's reticence to lose about $100 million in annual revenue, he argued it was a drop in the bucket for the state. "The $100 million in the context of a $6 billion budget, from a percentage standpoint, frankly is minimal. And I think that we owe it to the residents of Delaware to really push to get that reduced," he said of House Bill 36 that has bipartisan support.

Gov. Carney proposes record $5.4B budget

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