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Continued strong revenues add $184M to state budget

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Delaware’s independent fiscal analyst board (DEFAC) has added more estimated revenue to the state’s coffers as wages rise and corporations profit. | PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI

DOVER – In their last report before the state legislature begins its final deliberations on the Fiscal Year 2023 budget, Delaware’s independent fiscal analysts added $184.2 million to their estimated budget limit, which now totals more than $6.4 billion for next fiscal year.

Gov. John 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 continues a years-long string of strong returns. Those results helped convince the Carney and the General Assembly to also approve a $300 direct stimulus check to nearly every adult, spending down $236 million of the surplus in a program that would reach 750,000 Delawareans.

The May 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 $815.7 million surplus.

Ever 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 inflation, 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 $6.48 billion. The increased figures come in part from continuing high personal income tax (PIT) withholdings – Delaware’s largest single revenue source. DEFAC increased its estimate for the combined PIT revenue by nearly 10% since their March meeting, adding $168.2 million to coffers.

“We do now see very strong wage growth continuing into next fiscal year,” David Roose, the director of research and tax policy for the Delaware Department of Finance, told DEFAC, noting that they were estimating 8% and 6% increases to personal income tax withholding revenues over the next two fiscal years as well.

Another strong revenue source is corporate franchise and LLC/LP fees, with formation volume up nearly 20% 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. DEFAC added $31.8 million more to net franchise tax and LLC/LP fees for the current fiscal year after seeing strong returns,

Although the analysts continue to see reports of strong growth, they are also cautious of over-estimating the longevity of the gains. Last month, Roose 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 $800 million disappear over two fiscal years.

While Fiscal Year 2023 is still projected to grow 1.4% over the current year that ends June 30, the analysts have tempered their expectations for sources like personal income taxes, realty transfer taxes and net franchise tax and LP/LLC fees, projecting less than 3% decreases year-over-year for each from abnormally large returns this year.

“We think we’re in the right place and balancing the risks, but there’s an awful lot of uncertainties and an awful lot of unknowns, and hence an awful lot of risk in the out-year forecast at the moment,” Roose added.

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