Delaware analysts project better revenue once again

DOVER – State lawmakers received good news for the second straight month on Wednesday, as fiscal analysts improved Delaware’s revenue outlook for the current and impending fiscal years and lessened the deficit that the General Assembly will have to fill by June 30.

Between fiscal years 2020 and 2021, the Delaware Economic and Financial Advisory Council (DEFAC) improved its outlook by a combined $90 million. While good news amid the fallout of the COVID-19 pandemic, it still leaves lawmakers to solve a $403.4 million deficit in the budget that starts July 1.

Personal income tax filing projections increased more than $40 million over both years while franchise taxes and corporate income taxes increased by nearly $60 million to help spur a bright fiscal outlook. The state is now projected to close out FY2020 with a surplus of about $118 million – far better than the $150 million deficit that the analysts projected in April amid the height of the pandemic.

In a Wednesday statement, Gov. John Carney said that “today’s news is good, but this is still a very challenging situation, to be sure.”

“Going forward, our priorities are protecting the jobs of state employees and critical new investments in education and infrastructure statewide. That’s only possible because we acted responsibly in good times, and increased our reserves. I want to thank members of the General Assembly – and especially members of the Joint Finance Committee – for their partnership and hard work,” he said.

How the $403.4 million FY 2021 deficit is closed isn’t something that DEFAC, a non-partisan group of business and community leaders, academics, and government professionals that sets the state’s official revenue estimates, is tasked to consider, but the state does have reserve funds in tow for such an emergency.

The General Assembly’s Joint Finance Committee recently reviewed a revised budget proposal from Carney’s administration that sought to utilize $76.3 million from the Budget Stabilization Fund, which was created under Carney’s tenure to plug smaller budgetary gaps through an annual savings program. It’s unclear whether that sum may now be lower due to the improved revenue expectations.

The administration’s proposal does not use any of the state’s reserve fund, which is filled by unspent funds each year and capped at 5% of state revenue. States typically try to leave such savings funds untouched to boost credit ratings, and Delaware has never drawn from the reserve account since it was created in 1980.

To further meet the deficit for FY 2021, the administration is proposing to eliminate a planned 2% pay increase and step increases for state employees to save about $55 million. It is also axing a $233 million cash infusion into the state’s capital projects budget and reallocating $25 million in earmarks for land preservation and other programs.

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.

Notably, $1.25 billion in federal stimulus funds for the state, shared with New Castle County, cannot be used to replace lost revenue, according to the terms of the legislation approved by Congress. The fund can reimburse states and municipalities for expenses related to the pandemic response effort. Much of the funds are being allocated to replenish the state’s Unemployment Trust Fund, which has seen more than 100,000 residents make claims for assistance.

The state legislature’s Capital Budget Committee is scheduled to meet Thursday, while the Joint Finance Committee, which is in charge of the operating budget, is scheduled to Monday to discuss a $55 million grants package for nonprofit groups, community organizations and volunteer fire companies. The budget deliberations by the state House and Senate will be history-making, as lawmakers are expected to holding their hearings remotely for the first time amid gathering limits spurred by the pandemic.

By Jacob Owens

jowens@delawarebusinesstimes.com