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Analysts: Delaware may see $490M budget surplus

October 17, 2022 |By Jacob Owens

DEFAC Delaware budget — PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI

The Delaware Economic and Financial Advisory Council (DEFAC), the state’s fiscal analysts, raised their revenue projections for the fiscal year largely on the back of corporate formations and investment proceeds, although they are preparing for a yearlong recession. | PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI DOVER – Despite a growing belief that

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The Delaware Economic and Financial Advisory Council (DEFAC), the state's fiscal analysts, raised their revenue projections for the fiscal year largely on the back of corporate formations and investment proceeds, although they are preparing for a yearlong recession. | PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI[/caption] DOVER – Despite a growing belief that America is likely heading to a recession, Delaware’s independent fiscal analysts are seeing higher than normal tax collections, leading them to raise the current fiscal year’s revenue projections. Delaware is now estimated to end the current fiscal year on June 30 with a surplus of $489.9 million, according to 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. It will push the potential budget limit for next year’s Fiscal Year 2024 budget to $6.26 billion. Through the COVID pandemic, ensuing supply chain issues and now rising inflation, DEFAC has continuously reported strong revenue flows for the state. But it is now beginning to gird the state for a likely economic recession, officials reported during their Monday meeting. The panel cut revenue projections for FY 2024 in personal income tax, gross receipts tax and realty transfer taxes – three sources likely to be impacted by lower wages and spending patterns. Those cuts will be superseded by explosive growth in franchise and LLC/LP taxes though and improved returns on state bonds and dividends as interest rates rise. “The consensus now is essentially that a recession is beginning sometime last week or next week and lasting probably nine to 12 months. But I think at this point, expectations are still for pretty mild recession,” said David Roose, the director of research and tax policy for the Delaware Department of Finance. The latest upward estimate revision to the state’s coffers comes largely on the back of franchise and LLC/LP taxes, which have risen $158 million this fiscal year. A considerable growth in publicly traded shares has helped lead to higher tax assessments, but uncertainty in the stock market heading into an assumed recession convinced the analysts to peg a 13.5% revenue reduction in the next fiscal year. Christopher Knight, deputy director of the Department of State that oversees franchise and LLC/LP formation in the state, reported that those entities now total more than 1.9 million in the state – or about two for every actually resident. The importance of Delaware’s dominance in the legal formation and associated Chancery Court system is not understated. “This year, for the first time, we have over $2 billion in corporate franchise revenue from all sources. And if you add in the franchise’s little brother, which is unclaimed property, we have another $400 million or so. You come close to $2.5 billion in dependency on the corporate franchise in a $6 billion budget, with the math being about 40%,” said Jeff Bullock, the state secretary. “That’s a lot, and it's grown significantly since I've been secretary.” DEFAC has several new members for the first time in some years as David Gillan, CEO of County Bank; Sheila Bravo, president and CEO of the Delaware Association for Nonprofit Advancement; Pierre Anderson, chief information officer at Artesian Water Company, join the panel. Meanwhile, Bill Fasy, president of Delaware Park Casino & Racetrack, and Sen. Colin Bonini are exiting the panel. The officials held a wide-ranging discussion on the state of the local economy, with many agreeing that a short recession was expected, but many noted that it seemed to defy traditional norms. Employment has held fairly strong with many employers continue to hire despite inflationary pressures. Delaware Department of Transportation Secretary Nicole Majeski noted that construction industry leaders have told her department that were staffed enough to tackle large projects. “We are seeing multiple bidders for all of our projects, which is a very positive sign,” she said.