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Delaware projects revenue growth ahead of budget talks

Katie Tabeling
Legislative Hall Statehouse Dover Delaware flag stock DEFAC

The Delaware Economic and Financial Advisory Council has added $249.8 million to its projections to the FY 2025 budget limit, and set the spending benchmark at 5.9% in one of its last meetings before lawmakers start final talks on the state budget. | DBT FILE PHOTO

BEAR Delaware’s independent panel of fiscal advisors added $249.8 million to their estimated Fiscal Year 2025 budget limit in one of the last meetings before legislators begin their final deliberations on the state budget.

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, raised the spending limit to $6.82 billion.

 It offsets the prediction of slower revenue growth the council estimated back in March, which was $84.6 million. It could also provide more of a financial cushion for lawmakers who will consider Gov. John Carney’s final budget in the upcoming days.

Delaware is now anticipated to end the current fiscal year on June 30 with $546.2 million surplus.

The Fiscal Year 2025 budget proposed by Carney includes a $6.1 billion operating budget along with $943 million in bond-funded and multi-year capital improvement projects. The proposed spending plan also includes $66.5 million in grants-in-aid assistance as well as a one-time payment of $91.8 million, mostly to handle other post-employment benefits (OPEB) liabilities for state employees.

The state still holds $328.8 million in its “Rainy Day” reserve fund and in the Budget Stabilization Fund, a discretionary fund that could be tapped to fix unexpected issues. Both of these measures protect Delaware’s AAA bond rating, which state officials leveraged ahead of a $359 million general obligation bond sale earlier this month.

The higher estimated revenue for the current fiscal year results from stronger than previously expected personal income, which was revised to $80.3 million. Limited partnership fees also added $37 million, due to the accelerating collections.

“In December the revenues looked flat, but in March, they came back very strong. Just withholding alone was above 7%,” DEFAC Revenue Subcommittee Chair Lindsay Davis-Burnham said at the May 20 meeting. “When you add that with money from the final returns, we’re looking at a goodly increase, not including the increase in the sports lottery.”

The new iGaming contract with Rush Street Interactive has been “extremely successful” and brought in $3.9 million in April alone. Though the council and finance officials were cautious about what triggered the revenue, RSI opened the state to mobile sports betting for the first time and Super Bowl 58 and the NCAA Tournament were held in the first quarter of the year. Last year, iGaming brought in $5.2 million in total.

“It’s not clear yet from only four months of data what the revenue from a normal month will be,”  David Roose, the state finance department’s director of research & tax policy, told DEFAC. “We’re not even sure at this point whether play has leveled out or will continue to grow.”

With that said, DEFAC cautiously raised iGaming projections by $1.5 million. In total, the lottery revenue estimate raised $10.3 million.

On the other side of the coin, DEFAC took note that gross corporate franchise tax collections were up by $6 million. But Roose noted that the revenue stream was not tracking the same “extraordinary amounts” in past meetings. 

All other revenue streams saw small revisions of over $10.7 million. That was driven by a $50 million reduction in unclaimed property claims, which fuel the general fund and less turnover in the state government.

DEFAC proposed a benchmark spending index rate of 5.9% for the FY 2025 budget growth. 

Rep. Danny Short (R-Blades/Seaford), who sits on DEFAC, noted that the next governor will have major choices to make on fiscal policy, as Carney introduced the budget spending benchmark via executive order in 2018. A proposed bill would codify the budget stabilization fund and benchmark into state law is working its way through the General Assembly.

“The worry I have, as one of the longest serving members of the House on our side of the aisle, is that one particular governor came in with a $400 million deficit, and then the subsequent governor then came in with a $800 million deficit,” Short said. “Ultimately, the benchmark is a very important exercise. I’m hoping that DEFAC can take a stance that this should be continued so we are not encumbering a new administration with a deficit that impacts the taxpayers of the state.”

Short has indicated that he would soon propose legislation that would require the state to hold to the spending benchmark, in the days following debate on legislation that seeks to hold hospital budgets to follow benchmarks. Recent amendments to House Bill 350, however, now have that benchmark linked to the consumer price index or at 2% growth, whichever comes first.

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