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Delaware analysts improve budget outlook, but deficit still lies in FY21

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Delaware’s non-partisan budget analysts slightly improved the outlook for revenues in their May report, but a deficit of nearly $500 million still lies ahead for lawmakers to close. | DBT FILE PHOTO

DOVER – State fiscal analysts improved their outlook for the end of fiscal year 2020 on Thursday, revising their revenue estimates to finish with a $39.1 million surplus and leaving Gov. John Carney to fill a deficit of $491.6 million in next year’s budget.

While it’s an improved position from the April report, which was estimating a $748.7 million deficit to start the next fiscal year on July 1, it’s still a stark turn from December when the Delaware Economic and Financial Advisory Council (DEFAC) estimated that the state would enjoy a $246 million surplus.

“We overshot. The behavior of taxpayers was a little bit different than what we thought it would be,” Delaware Finance Secretary Rick Geisenberger said Thursday, explaining that analysts added back about 21% of the revenue they thought would be lost in April and March.

How that 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.

Delaware Office of Management and Budget Director Mike Jackson noted that the state’s $126.3 million budget stabilization fund, a savings account created under Carney’s watch as a budget stopgap, will likely be a part of the solution to fill the FY 2021 deficit.

Jackson previously told Delaware Business Times that the state would avoid drawing from its “rainy day” Reserve Fund until all other options were exhausted. The coffers of the state’s rainy day fund is one of the factors taken into consideration by bond rating agencies, and Delaware currently holds the highest rating level at all agencies.

Carney said in an April press conference that he was not yet considering layoffs or furloughs for state employees to help close the budget gap but conceded that “we’re going to have to take whatever measures are necessary to close the gap.”

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.

DEFAC Chairman Michael Houghton asked how New Castle County expected to spend $323 million prior to the end of 2020, to which Jackson, of OMB, replied that state officials were working on a partnership to share some of the costs of programs put into place.

Geisenberger noted that much of the stimulus funds would be used to bolster the state’s Unemployment Trust Fund, which has paid out $91 million in claims during the crisis to May 16 – nearly double all of last year’s payments – and could be exhausted by the end of June. If that happens, the state will have to seek a loan from the federal government to continue to keep the assistance flowing.

“We obviously don’t want to have a huge loan that results in a large tax increase on all Delaware workers at the end of this, which is what happened after the last Great Recession,” he said. “We had to raise taxes at the exact wrong time.”

By Jacob Owens

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