[caption id="attachment_235085" align="aligncenter" width="1200"] David Roose, director of research and tax policy for the Delaware Department of Finance, outlined the December report for DEFAC before the panel approved the budget estimates Monday. | DBT PHOTO BY JACOB OWENS[/caption]
WILMINGTON – In one of the most important meetings of the state’s fiscal year, an independent panel of analysts set Delaware’s budget limit Monday at just over $6.4 billion for next fiscal year, a roughly 3.3% decrease over the current fiscal year’s total approved appropriations.That is the sum that Gov. John Carney will have to craft one of his final budget proposals that will be released next month, and it is lower than the prior year for the first time since the pandemic began.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 $300.9 million surplus.The report, which added $89.1 million to revenue from DEFAC’s October report, means that the governor will not be contending with a deficit during the upcoming legislative session, but lawmakers will need to slow spending from current levels.DEFAC also calculated a benchmark index rate of 5.9% to produce a budget target of $6.125 billion, covering the state’s operating budget, grants-in-aid and cash contributions to the capital budget and extraordinary retirement benefits for state employees. That rate would leave nearly $365 million in excess cash to spend on one-time expenditures or other uses.The benchmark rate is only required to be calculated, however, and spending has often exceeded that rate, leaving fewer funds for one-time expenditures. Cerron Cade, the director of the Office of Management and Budget, already warned that higher-than-expected health care contributions are likely for next year.Cade preemptively warned against any thoughts of dipping into the state’s $605 million Budget Stabilization Fund to cover continued spending levels. That fund was established by Carney earlier in his administration to help smooth over unexpected revenue declines.“We have to continue to hammer home the message that even though we don't have all the resources that we need to do the things that we want to do, it does not necessarily mean that it triggers us to be able to get into the Budget Stabilization Fund to solve that particular problem,” he said.
[caption id="attachment_235084" align="alignright" width="300"] Delaware Finance Secretary Rick Geisenberger noted the importance of the state's non-traditional revenue streams to residents. | DBT PHOTO BY RICK GEISENBERGER[/caption]
Although DEFAC has no authority in determining the state’s tax policy, the members spent most of their time Monday afternoon discussing the unique makeup of Delaware’s revenue base, which depends on volatile sources like corporate income taxes and escheatment of unclaimed property. Those revenue sources help Delaware to not enact a consumer sales tax, and although they have come under more threats, it largely has held to date.Nearly 40% of state revenue also comes from franchise formation fees and annual taxes, which requires the state to remain the incorporation destination of choice for companies.“If we don't [protect that reputation], the real risk for the franchises is not some other state doing it but the federal government deciding to swoop in and handle it. Every 20 to 30 years, the federal government entertains legislation to do just that,” Delaware Finance Secretary Rick Geisenberger said.