Delaware analysts raise FY 2022 revenue forecast
DOVER – Gov. John Carney received some welcome news just before Christmas, after Delaware’s fiscal analysts raised their revenue forecasts for Fiscal Year 2022, giving him more cushion in crafting next year’s budget proposal.
At the Delaware Economic and Financial Advisory Council’s much-watched Dec. 21 meeting, the advisory group set the spending limit for the governor’s next budget at about $5.15 billion. That mark is $202.4 million higher than its projection made in October, due primarily to improving outlook for the current FY 2021, which also saw revenue projection rise by 5.6%, or $121.6 million.
The state is anticipated to end the current fiscal year with a $495 million surplus that will carry over into the budget that begins July 1, 2021. At a potential mark of over $5 billion, the next budget will likely be considerably bigger than the current $4.54 billion budget passed amid the pandemic – which still was the largest in history.
DEFAC, a non-partisan group of business and community leaders, academics, and government professionals that sets the state’s official revenue estimates, is tasked with forecasting revenue and expenses for the state to remove politics from the equation. Its approved recommendations set the parameters for the governor and legislators to determine how to spend state funds.
Under state law, Delaware’s operating budget cannot appropriate any more than 98% of predicted revenue. Meanwhile, more than 60% of Delaware’s state expenditure is on core programs like public education, social services, and Medicaid.
Although there continues to be troubling unemployment and business restrictions, the state’s economic condition is markedly improved from the concerns raised by DEFAC in the spring as the COVID-19 pandemic virtually shut down the state for several weeks. The advisory group has raised or held its projections in each of its last four meetings dating back to May.
One of the biggest reasons for the improved financial status is the record high level of realty transfer tax revenue. For four consecutive months from August to November, the state brought in record levels of realty transfer tax – the state receives 2.5% of sale value while counties receive 1.5%.
Somewhat surprisingly, those increases were driven by Sussex and Kent counties, where both residential and commercial sale revenue was higher than averages, while the more populous New Castle County has seen flat residential revenue and decreased commercial, said David Roose, the director of research and tax policy for the Delaware Department of Finance.
“Home prices are soaring,” he explained, noting that annualized growth of 15% has been seen in these last two home price index reports. “That’s the strongest growth we’ve seen in home prices since 2013.”
The analysts revised estimates for realty transfer tax up by $20 million for FY 2021 but forecasted a more cautious $10 million increase in FY 2022 in case the recent surge is more a temporary spike.
Corporate franchise tax estimates have also increased by more than $69 million in FY21 and almost $40 million in FY 2022 due to the growing number of business filings despite the pandemic. A six-year high in initial public offerings (IPOs) has helped bolster the state’s corporate franchise tax revenue.
Personal income taxes are also projected to increase about $40 million this fiscal year and $32 million in the next, due primarily to belief that the economy will return stronger in the next calendar year while also accounting for state income taxes that unemployment insurance benefit recipients didn’t withhold.
The rosier short-term outlook belies the fact that the COVID-19 pandemic has caused nearly $333 million in lost revenue projections over fiscal years 2020, 2021 and 2022 though, officials reported.
“That money is essentially revenue that is permanently lost to the state,” Roose said.
“I think the key takeaway from this presentation is that we are entering a period of slowing down and real risk to the forecast until the vaccine comes about,” he added. “But after that point – whether it’s April, May, June, or may be a little bit later – with the vaccine really taking effect, the economy seems to be poised at the moment for a pretty strong expansion.”