DOVER – In their last report before Gov. John Carney unveils his next budget proposal, Delaware’s independent fiscal analysts added $264.3 million to their estimated budget limit, which now totals more than $5.94 billion for Fiscal Year 2023 – a potentially record-setting figure.
Those increasingly rosy projections come as some of the analysts and state officials expressed some disbelief at the continuing strong financial trends despite macroeconomic pressures that would typically indicate that they should be more curbed than they currently are.
The December 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 estimates, now projects that Delaware will end the current fiscal year with a $577.1 million surplus.
Over more than a half dozen meetings since the COVID-19 pandemic began, DEFAC has steadily increased its projections for revenues as the economy came roaring back fueled by rising corporate profits, higher personal incomes, and record real estate sales despite the job losses and supply chain disruption that have concurrently occurred.
On Monday, the panel approved new estimates that would start the next fiscal year July 1 with a potential $5.94 billion state budget, about $199 million more than the record-breaking current fiscal year’s spending that was aided by a huge infusion of federal stimulus funds due to the pandemic.
DEFAC is projecting the state to see $123.1 million more in revenue in the fiscal year that ends June 30, with about half of that sum attributed to increased corporate income taxes and nearly a third attributed to personal income taxes and franchise and LLC taxes. Particularly noteworthy is that DEFAC has raised its projection for corporate income taxes by 88% since its final pre-budget analysis in June.
“Collections [of corporate income taxes] right now are, to my mind, are well beyond what you would expect based on the economic data,” said David Roose, the director of research and tax policy for the Delaware Department of Finance. “It does seem clear that a large part of what’s going on is a very strong economy.”
Roose did emphasize that the projections on income taxes, both corporate and personal, are more susceptible to the impacts of the larger economy, and therefore the pandemic. That could put the projections at greater risk of a future write-down should the pandemic worsen, or economic pressures increase.
Of all the revenue sources for the state, DEFAC only lowered estimates for three small-scale sources by about $3 million this fiscal year, while maintaining or increasing estimates on all of its other sources.
Roose told DEFAC members that Delaware is not alone in raising its revenue projections, as many states set their expectations cautiously lower than they perhaps needed to in the early days of the pandemic.
“We were not alone in writing revenues down a tremendous amount; almost every state did that and then spent the next year plus generally ratcheting things back up in small or big steps,” he said.
The degree to which the economy has come roaring back despite supply chain, workforce and inflation concerns has baffled many analysts though.
“The corporate income tax has many states, maybe not all states but many states, scratching their heads, trying to figure out why it is that we’re seeing such very strong growth,” Roose added.
Although the estimates foreshadow what could be a record operating budget next year, a Carney spokesman said the governor was more focused on wise budgeting and investing in one-time expenditures.
“Gov. Carney and the General Assembly have made it a priority over the past five years to get the state budget in order and responsibly manage taxpayer money. We’ve made historic investments in public education and infrastructure while building up the state’s reserves and directing one-time revenue into one-time projects – rather than the operating budget,” Carney spokesman Jonathan Starkey told Delaware Business Times on Monday. “That’s what helped get Delaware through the pandemic without tax increases or budget cuts that we have seen in other states. And it’s why we continue to be in a good place on the budget. The governor will continue to propose responsible budgets that stick to those principles and protect taxpayer money.”
