Colleen Davis: Delaware fiscal controls position state to weather COVID-19 storm
By Colleen C. Davis
As Delaware’s State Treasurer, I am focused on managing the needs of our communities and the changing daily priorities. As the new normal begins to take shape, my team and I are performing the critical work of preparing for the near- and long-term effects that the coronavirus will have on our public funds and our ability to deliver vital services amid decreased revenues. Assessing the impact of the crisis and being able to effectively model revenues is essential in the days ahead.
Despite this uncertainty, I am cautiously optimistic that Delaware is well positioned to weather this storm for a number of reasons.
For a long time, we Delawareans have celebrated our AAA rating. While we are certainly grateful for this distinction, we also know that it has been the direct result of difficult lessons learned from our past fiscal shortcomings.
As recently as 1978, our fiscal practices led us to be one of the lowest rated states in the country. We managed to save ourselves from our financial ruin by institutionalizing numerous fiscal controls, many of which remain in place today including:
- Delaware Economic Forecasting Advisory Committee (DEFAC), a public-private body that forecasts revenues 6 times a year
- Maintaining our Rainy Day Fund, which we deposit fund balances into until it reaches 5% of revenues. It’s currently fully funded and has gone untapped since its inception in 1979
- Budget spending is capped at 98% of revenues
- 3-part affordability test that we apply prior to any new debt issuances.
- Debt authorization cap is the understanding that I cannot authorize debt with an aggregate principal that exceeds 5% of the estimated General Fund revenue for that particular year.
The fiscal controls listed above are defined by statute in Delaware Code. There are other actions we take as a matter of best practice and include:
- High cash balances relative to expenditures
- Using one-time revenues for one-time expenditures
- Applying a budget benchmark index to control spending during surplus environments
- Consistently funding our pension by fully funding our ARC (annual required contribution)
In these deeply uncertain times, it is imperative that we lead effectively by managing the challenges of today, while preparing for the next issue over the horizon. To do this, I have been in constant contact with my fellow state treasurers across the country, as well as our federal, state and local leaders. I am grateful for the insight I have received from these critical contacts and feel that we, as a state, are well positioned to chart a determined path forward. All the while, I will continue to advocate for any necessary fail-safes which we might need to protect our future and to emerge from this crisis even stronger than before.