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State budget limit tops $6.5B as revenue grows

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Delaware’s fiscal analysts are predicting runaway revenue growth to slow in coming years, but the state is currently sitting on an enormous budget surplus. | PHOTO COURTESY OF UNSPLASH/PEPI STOJANOVSKI

DOVER – In their last report before the Fiscal Year 2023 budget is approved, Delaware’s independent fiscal analysts added $89.5 million to their estimated budget limit, which now totals more than $6.5 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 Friday report continues a years-long string of strong returns. Those results helped convince the Carney administration 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 June 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 $889.6 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 Friday, the panel approved new estimates that would start the next fiscal year July 1 with a spending authority of $6.57 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 $27 million after another month of strong returns.

The year-to-date collections exceeded the state’s original forecasts, with nearly 7,000 additional filers this year. Collections grew by $100 million, with the average annual payment increasing by nearly 50% to $1,711 – a byproduct of growing salaries and wages amid a competitive hiring market.

DEFAC also increased year-end estimates for corporate income taxes (CIT) by $20.1 million, and also revised upward estimates for the revenue sources in both of the next two fiscal years.

The analysts are carefully watching how inflation, and the corresponding fiscal policy by the Federal Reserve, is impacting revenue sources. Last week, the Fed raised its benchmark interest rate by 0.75 percentage points – its largest single increase since 1994 – to a range of 1.5 to 1.75%. It aims to dampen spending enthusiasm through a higher rate framework to tame inflation that has run up to 8.6% as of May.

That decision impacts a range of household products from credit cards to savings accounts, and most notably mortgages. The average 30-year mortgage loan now sits around 6%, when they could be found about half that a year ago.

Anecdotal evidence (and some data) indicates that the real estate market – which has produced historically high amounts of realty transfer tax revenues – is already beginning to slow in Delaware and nationwide, according to DEFAC. While the analysts are now projecting a 10% decline in RTT revenues next year, they don’t expect a housing market collapse like that experienced during the Great Recession. They also anticipate the non-residential market to remain strong, a belief buoyed by continued record high sales in the industrial and multifamily segments.

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