DOVER – In their first report since Gov. John Carney proposed his Fiscal Year 2023 budget, Delaware’s independent fiscal analysts added $349 million to their estimated budget limit, which now totals nearly $6.3 billion for next fiscal year.
Carney’s $4.9 billion budget proposal and more than $200 million in one-time supplemental funding projects only cautiously dipped into the enormous well of available dollars.
The Monday report of continued strong returns reportedly pushed the Delaware General Assembly to propose a $300 per taxpayer direct stimulus check this week though. That $186.6 million plan, paid out of the state’s surplus, would send a direct check to any Delawarean that filed a 2020 tax return, impacting about 600,000 residents.
The March 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 $799 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 spending authority of nearly $6.3 billion. The increased figures come from historically high personal income tax (PIT) withholdings and estimated payments – Delaware’s largest single revenue source. DEFAC increased its estimate for the combined PIT revenue by 7%, even despite a recently approved waiver of taxes on unemployment benefits doled out last year that resulted in a loss of nearly $19 million this fiscal year.
Another strong revenue source is corporate franchise and LLC/LP fees, with formation volume up about 15% this fiscal year. Reportedly about 93% of new public companies have chosen to incorporate in Delaware, continuing its dominance in the corporate arena. The state is now reportedly home to 1.8 million entities – or roughly twice as many residents.
Although the analysts continue to see reports of strong growth, they are also cautious of over-estimating the longevity of the gains. David Roose, the director of research and tax policy for the Delaware Department of Finance, outlined the worst-case scenarios for if each of the state’s top four revenue streams saw their historic worst 18-month decline concurrently. That scenario would see more than $1 billion disappear over two fiscal years.
“These things can turn quickly, and they can turn substantially,” he told DEFAC at their March 21 meeting. “To be clear, we don’t see that in the forecast, but that was probably the case in several of these instances that they weren’t seen in the forecasts until they were upon us.”
State Finance Secretary Rick Geisenberger said that it wasn’t time to raise alarms, though DEFAC and state leaders were expecting to see revenue declines next fiscal year from their uncommonly high current returns, followed by flat growth in FY 2024.
“From what we’ve seen previously, there’s a lot of reasons why we haven’t built that worst-case scenario into the forecast at this point. People are not forecasting recession … but it’s certainly why the budget that the governor proposed leans toward building reserves,” he said.
