Analysts add $429M to Delaware FY22 budget limit
DOVER – The state’s independent fiscal analysts continued their positive outlook for the coming months, despite the lingering impacts of the COVID-19 pandemic, by raising Delaware’s budget limit for next fiscal year by $429.3 million on Monday to a total of more than $5.9 billion.
Ever since the pandemic struck, officials have anxiously watched the analysis 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.
DEFAC’s May report is considered one of its most important, as it guides lawmakers’ final deliberations over the fiscal year budget that occurs annually in June. The increase only continues to aid Gov. John Carney’s ability to pass his record-breaking $4.7 billion Fiscal Year 2022 operating budget and $894 million capital budget proposed in January without serious, if any, cuts from the legislature.
David Roose, the director of research and tax policy for the Delaware Department of Finance, said Monday that “the economy really is in fantastic shape,” and Delaware’s tax and fee revenue reflect that.
“The economic outlook over the near-to-medium term is extremely strong. There were quiet discussions about inflation and its risks that began maybe in the middle of last year, but they now certainly have come out into the open. And I think to a large degree, all of this is indicative of the rollercoaster that we’ve been on,” he said. “Sitting here a year ago, who would have thought that we’d be having discussions about the fastest economic growth in generations?”
The analysts now expect to end the current Fiscal Year 2021 budget on June 30 with a $875.2 million surplus and see $238.4 million more in FY 2022 revenue than previously thought. The FY 2022 budget limit will be amended again at DEFAC’s June 18 meeting, the last time it will be addressed before legislators approve the final budget.
After a review of the state’s financial standing for the next fiscal year, several meeting participants simply said, “Wow.”
“Can we please hide these numbers from my colleagues?” State Sen. Colin Bonini (R-Dover) said jokingly as Democratic leadership listened.
The improved financial standing for the state largely comes from the successes of corporate America, which has continued to book solid revenues in major sectors, including health care, finance, and homebuilding, despite the pandemic.
The state’s net corporate franchise tax estimate was increased by nearly 16%, or $38 million, for the current fiscal year. Kristopher Knight, director of the state’s Division of Corporations, noted that Delaware has been home to all 91 initial public offering (IPO) companies launched in 2021.
The net corporate income tax estimate was also increased by nearly 18%, adding $57 million, in a revenue stream that is doing “extraordinarily well.”
“We had one of the best Aprils on record for both final payments and for the large first-quarter estimated payments, and I think on both of those indicates that either tax year 2020 was just generally very good for corporations or, when they were making estimated payments in the middle of the year, things were looking very bad and so they paid very low estimated payments relative to how the year ultimately ended up,” Roose explained.
The extraordinary increase in realty transfer taxes has also continued as the housing market stays hot. The analysts increased their estimate for FY 2021 by $22.5 million after the February through May period showed record collections. Only a period in 2005, when the pre-Great Recession housing bubble was at its peak, comes close to the recent returns on property sales.
Despite the air of continued positive news in their discussions, DEFAC Chair Michael Houghton warned his colleagues and lawmakers to be wary of what the future may hold. The council notably heard a discussion Monday about the prospects for substantial inflation this year and how the Federal Reserve could react if it arises.
“We need to continue to be cautious,” Houghton said. “Some of these changes continue to be a function of extraordinary times, which will clearly have a positive impact in the short term but are probably not completely reliable and predictable. In fact, I would say they aren’t.”